According to legend, Uncle Sam was ‘born’ during the War of 1812 and was patterned off of one Samuel Wilson, an upper New York state food staple provider to the United States Army. According to information obtained from wikipedia.com:
Common folklore holds origins trace back to soldiers stationed in upstate New York, who would receive barrels of meat stamped with the initials U.S. The soldiers jokingly referred these initials as to naming the troops' meat supplier, (Uncle) Samuel Wilson of Troy, New York.
A more contemporary development in United States history is the concept of the ‘Tax Gap’, and it is not nearly as amusingly cartoonish as Uncle Sam. The Tax Gap is an IRS directive meant to collect more tax revenue for the government; another way to think about it is, a way to collect tax revenue more efficiently. Essentially, determining the tax gap is as simple as calculating the difference between what people actually pay versus what the IRS estimates they should be paying on a timely basis. Their estimates were based off of statistical analysis of approximately 46,000 returns from 2001. According to the IRS web page dedicated to the Tax Gap:
The updated estimate of the overall gross tax gap for Tax Year 2001 – the difference between what taxpayers should have paid and what they actually paid on a timely basis – comes to $345 billion. This figure falls at the high end of the range of $312 billion to $353 billion per year, an estimate released last March.
IRS enforcement activities, coupled with other late payments, recover about $55 billion of the tax gap, leaving a net tax gap of $290 billion for Tax Year 2001.
As with prior estimates, the updated estimate of the tax gap shows that the largest component of this gap, more than 80 percent, comes from underreported taxes. Underreported income tax is the largest component of this (see attached Tax Gap Map for Tax Year 2001). Nonfiling and underpayment of tax comprise the rest of the tax gap.
Though the net misreporting percentage varies by category of income, the rates reflect that compliance is highest where there is third-party reporting or withholding.
Please pay very close attention to the second part of that last sentence…’compliance is highest where there is third-party reporting or withholding.’ The IRS basically admits in that telltale sentence that the easiest way for them to close the tax gap is to increase third-party reporting. This is where Scottrade comes in, and all brokerage firms or financial institutions across the nation, for that matter. The next time you wonder to yourself during a hectic tax season as to why they make things so complicated, why the laws are always changing-- now you know the real answer. Everything and anything in the tax reporting world that we will describe from this point forward is all part of an orchestrated effort by the IRS to ensure that we are reporting, as third party payors, the way that they want us to, so that they can close the huge divide that is the Tax Gap. --Brad
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