Sens. Tom Carper (D-Del.) and Barbara Boxer (D-Calif.) this week introduced legislation that seeks to increase federal tax revenues by requiring more information from self-employed workers, increasing penalties for failing to file, and even eliminating a current rule that says interest earnings under $10 do not need to be reported.
The bill, S. 1289, is aimed at eliminating what members of both parties have called the "tax gap," or the difference between taxes owed and taxes collected. Carper said the IRS in 2001 estimated that the tax gap was $290 billion, and said helping to improve revenue collections is a necessary part of any discussion about how to control the federal deficit and debt.
"As we work on developing a culture of thrift within our government, it makes sense to go after the low-hanging fruit first," he said. "My bill takes the necessary steps to cracking down on lawbreakers, which will lower costs for law-abiding Americans while reducing our deficit."
The bill would start by seeking to improve and simplify tax forms, but would also try to shore up the collection of data in an effort to close several loopholes.
For business owners who file a Schedule C form, the bill would require reporting on total gross receipts or sales reported to the taxpayer through payee statements, and total expenses for the taxpayer as reported through payee statements. It would also require the Treasury Department to identify how it can help file time Schedule C filers.
For tax preparers, the bill would increase penalties for failing to file electronically when required, and for failing to comply with earned income tax credit due diligence requirements. Higher penalties would also be imposed on individuals who fail to file, and the $10 de minimis reporting requirement for interest would be eliminated.
Elsewhere, the bill would require more information about mortgage interest deductions, reporting on all non-interest-bearing deposits, and some tax withholding for contractors. It would also ensure Treasury has access to the National Directory of New Hires, which would help the IRS have an updated understanding of when filers are working.
The bill would also try to fight scams in which prison inmates try to claim tax refunds, by requiring prisons to give the IRS the information it needs to detect this fraud.