How to Get Tax Cheats to Pay Their Share - Businessweek:
The IRS tax gap report notes that “Overall, compliance is highest
where there is third-party information reporting and/or withholding. …
As a result, a net of only 1 percent of wage and salary income was
misreported. But amounts subject to little or no information reporting
had a 56 percent net misreporting rate.” That includes things like rents
and, most significant, retail business income. Whereas firms have an
incentive to report wages paid because it reduces their own tax
liability, retail customers don’t get anything from reporting where and
how much they spent on a meal out, or a bathroom remodel, or a guitar at
the local music store. As a result, businesses can get away with
under-reporting sales, which reduces their reported income, and so the
taxes they report due to Uncle Sam.