IRS Surveys Taxpayers About Cheating -- and The Results Are Hard to Believe

In the annals of government surveys, this may be among the silliest. The IRS queried taxpayers about whether they think cheating on your taxes is wrong. Not surprisingly, they said they do.

A mere 8% of respondents to the 2010 Taxpayer Attitude Survey said that they believe that it's OK to cheat on taxes "a little here and there," and 4% responded that it was OK to lie to Uncle Sam "as much as possible."A much larger 87% responded that they thought it was "not at all" acceptable to cheat on your taxes. Interestingly, 30% of respondents said "it is everyone's personal responsibility to report anyone who cheats on their taxes."

The results, which were derived from 1,000 phone interviews between Aug. 13 and 15, have barely budged for years. It's human nature for people to tell survey takers what they want to hear. But there is considerable evidence that many people do shortchange the government, whether it's because of their financial circumstances, the horrendously confusing tax code or, in some cases, because they believe they will never get caught.

The Net Tax Gap--the difference between what was collected and what was owed--for 2001 (the last year that data was made available) was about $345 billion, of which the IRS estimates $55 billion will eventually be recovered. According to the Tax Policy Center, underreporting on individual tax returns alone accounted for 68% of the gross tax gap in 2001. The IRS is cracking down. IRS audits of individuals jumped by almost 11% in 2010, with more than 1.58 million people scrambling to justify their returns.

Americans will never outright admit this to surveyors but cheating on taxes is as American as apple pie (even as the federal deficit tops $1 trillion). Most people find nothing wrong with a little "creative accounting," provided that it benefits them and that they don't get caught. Those that do get caught are often those too greedy or stupid.

Former Survivor winner Richard Hatch spent more than three years in federal prison after failing to pay taxes on the $1 million prize he won on the show in 2006. Media reports say that Hatch is in danger of returning to jail for failing to file amended tax returns as required by the judge at his trial. Actor Wesley Snipes wound up in the slammer after failing to file tax returns from 1999 to 2004.

Only 35% of respondents to the IRS survey said that the "fear of an audit" influences whether they report and pay their taxes honestly. That figure was 39% in 2009 and has changed little during the survey's history. When asked in the survey about how important it was for the IRS to ensure high-income taxpayers "are reporting and paying their taxes honestly," 78% said it was very important. That's an all-time low. Go figure.

Nearly 60% of respondents said that they would be "very likely" to use a toll-free telephone number to get answers to their tax questions. The problem is that about one-in-four taxpayers who try to get help say they are unable to do so, according to a report last year from the National Taxpayer Advocate, the IRS office which advocates for consumers. Indeed, the IRS has beefed up its Enforcement Budget, but it has been slashing money for Taxpayer Services for years.

Perhaps one way Uncle Sam could get taxpayers to be more honest is to spend more time clarifying the tax code and offering them help, instead of spending its resources on surveys asking them whether or not it's OK to cheat.

Hat Tip: TaxProf Blog