Altogether, the IRS estimates it was owed nearly $2.7 trillion in taxes in 2006.
The agency said that out of the $450 billion taxpayers underpaid that year, the largest share â¿¿ an estimated $376 billion â¿¿ came from underreporting of income.
The IRS pointedly noted that compliance increases when third parties like employers report income information to the government and when they withhold taxes that are owed.
The report said that with wage and salary information reported to the IRS on W-2 forms, only 1 percent of that income was misreported. But an estimated 56 percent of income was underreported when the government requires little or no information, such as income earned by some small businesses, renters and businesses selling property.The IRS has made efforts to improve compliance, such as increasing oversight of professional tax return preparers and increasing the information that must be reported to the agency by stock brokers, mutual fund companies and for some business transactions. Even so, tax analysts said there was no reason to believe that today's compliance rate has changed significantly from the 2006 figures. That is chiefly because significant portions of the underpaid taxes are believed to come from businesses and individuals who report information about their income that is difficult for the IRS to verify. "It's hard to get to that," said Clint Stretch, a tax policy expert for Deloitte Tax LLP. "Nobody wants a bunch of IRS police hammering on small business people." John Buckley, a Georgetown University law professor and former Democratic congressional tax aide, said that if IRS budget cuts continue, "It's quite probable we'll see a decline in compliance rates." The IRS's roughly $12 billion budget was reduced by about $300 million this year. The overall 2006 compliance rates were roughly similar to 2001, the last year the IRS had examined.