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Tax Gap from small business? Nah!!!!!

In a recent AICPA (American Institute of CPAs) survey, CPAs were asked what they think the major source of the tax gap is. The tax gap is the estimate of the shortfall of revenue collected due to mis- or non-filing of information and returns.

Survey Results


Most responsible for creating the tax gap:

48.7% believe small business and the self-employed are responsible.

15.2% believe individuals are responsible.

11% believe large companies are responsible.

25.2% believe other types of taxpayers are responsible or don’t know.


Activities that are major component of the tax gap:

54.9% believe the underreporting of income is the major component.

21.3% believe that the overstatement of deductions is the major component.

12.3% believe the act of not filing returns is the major component.


Primary contributor to the tax gap:

48.4% believe that the intentional disregard of the law is the primary contributor.

28.1% believe it is the complexity of the law/constant changes in the law is the primary contributor.

14% believe competitive pressures within certain industries is the primary contributor.

1.3% believe honest errors/mistakes is the primary contributor.

So, at least in the opinion of many CPAs, the lion’s share of underreported income and underpaid taxes falls right at the feet of the small business owners and the self-employed. In my tax return analysis training workshops most everyone in the room nods in agreement when I ask if they’ve heard this one before:

“Here is my tax return but let me tell you what I really make!”

Next post I’ll share with you legitimate reasons for the difference between what they report and how well they did.

About the Author
Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis. She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans. Creator of the Tax Return Analysis Virtual Classroom at, she speaks at banking associations on risk management, lending and director finance topics.