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Sam Goldfarb

Sen. Thomas R. Carper introduced legislation Tuesday intended to improve tax compliance, offering a range of ideas to raise revenue as lawmakers look for ways to curb the nation’s debt.

Carper’s bill would increase information reporting requirements for individuals, streamline certain tax forms and increase some penalties for taxpayer noncompliance, among other initiatives.

In a statement, the Delaware Democrat, who serves on the Finance Committee, directly tied his bill to the ongoing deficit talks. “Reducing the tax gap is a common-sense approach to combating our nation’s ballooning debt,” he said. “As we work on developing a culture of thrift within our government, it makes sense to go after the low-hanging fruit first.”

Carper noted that the gap between taxes owed and those collected amounts to about $300 billion annually, according to a 2001 IRS estimate.

For decades, lawmakers have looked to reducing the tax gap as a relatively safe target for raising revenue. However, several recent efforts to improve tax compliance have faltered after meeting resistance from small-business groups.

In one high-profile example, Congress this year passed legislation (PL 112-9) that repealed an information reporting provision that was used to help pay for the 2010 health care overhaul (PL 111-148, PL 111-152). Small businesses had argued that the requirement threatened to swamp them with paperwork.

Reporting Requirements

Still, several other initiatives to address the tax gap have made it into law in the past decade. At a Finance hearing Tuesday, Michael Brosteck, director of tax and strategic issues at the Government Accountability Office, noted that “the overall best way” to improve compliance “is always to try to get information reporting on income or deductions.”

“But the easy, the low-hanging fruit has been picked there,” he said.

Brosteck said that one way in which information reporting could be expanded would be to require taxpayers to provide the IRS with more information about their mortgages when they claim a deduction for their mortgage interest payments.

Following such advice, Carper’s measure would require taxpayers to report the address of their home, whether it has been refinanced and the remaining balance of their mortgage when claiming the deduction.

Carper’s bill, which has not been scored by the Joint Committee on Taxation, builds off legislation that he introduced last year. It adds a section intended to make it easier for people to meet their tax obligations, allowing them, for instance, to pay back-taxes with credit or debit cards without incurring any processing fees.

Though unlikely to become law, Carper’s legislation could potentially be mined by lawmakers looking to increase revenues in a debt limit package.