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IRS Estimate: 17 Percent Of Taxes Owed Went Unpaid

ALAN FRAM

WASHINGTON (AP) â¿¿ People and businesses underpaid their taxes by an estimated 17 percent in the most recent year studied, failing to send the government a massive $450 billion that it was owed, according to an Internal Revenue Service report released Friday.

The study covered 2006, the most recent data the IRS said was available. The amount of underpaid taxes far exceeded the size of the entire federal budget deficit at the time.

After IRS audits and other enforcement efforts, non-compliance in 2006 shrank to 14 percent. That left the final amount of unpaid taxes at $385 billion, the agency said.

Friday's report immediately became fodder for lawmakers arguing that any effort to overhaul the tax code â¿¿ which seems a long-shot in an election year â¿¿ must include closing the gap between what is owed and actually paid.

"The best way to increase compliance is to reform the tax code to make it simpler," said Michelle Dimarob, spokeswoman for House Ways and Means Committee Chairman Dave Camp, R-Mich. She said that would cause fewer errors and "greater certainty, which is key to job creation."

"In an era when we're squeezing the federal budget for every dollar of savings, we have to make every effort to recover these lost funds," said Senate Finance Committee Chairman Max Baucus, D-Mont.

By either measure, the total of unpaid taxes in 2006 was larger than that fiscal year's budget deficit of $248 billion. Federal fiscal years begin in October of the previous year.

Federal deficits have since mushroomed out of control, hitting a record $1.4 trillion in 2009 and barely receding to $1.3 trillion last year. President Barack Obama and Republicans in Congress have agreed to some spending cuts but have remained deadlocked over how to curb the gigantic budget shortfalls that are projected indefinitely.

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