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Tax cheats in IRS cross hairs

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Tax cheats and higher-income Americans are increasingly getting the attention of the Internal Revenue Service.

It is all part of a new enforcement campaign aimed to narrow a $250 billion tax gap — the amount of monies due the government that don't come in because of non-filing, underreporting and underpayment by individuals.

According to IRS Commissioner Mark Everson, the overall attitude of Americans toward paying their taxes has eroded.

In 1999, about 11 percent of Americans thought it was OK to cheat on their taxes.

"Our surveys indicate that has increased to 17 percent last year," Everson said in a teleconference with reporters on Thursday. "That's very alarming. We obviously can't have that continue or else we will not over time be able to fund our government, and we will lose a lot of basic respect for the rule of law."

Against that backdrop, Everson, who has been on the job for about a year, has vowed to reinvigorate the IRS's enforcement arm.

Already, audits of individuals making more than $100,000 are up 52 percent over fiscal year 2001. In addition to more audits, criminal tax prosecutions in fiscal year 2003 reached 1,353, an increase of 32 percent. Overall collection activity has increased to $35.5 billion, a 9 percent rise over the previous year.

Overall audits of all taxpayers in fiscal year 2003 increased to 849,296, an increase of 14 percent compared to the previous year.

The emphasis on enforcement has come nearly a decade after the agency suffered blistering criticism for its customer service.

Those problems have since been addressed, Everson said, but at the expense of the agency's enforcement activity.

In the five years after 1997, the number of enforcement agents, tax collectors and criminal investigators dropped from 26,333 to 19,285, a decrease of more than 25 percent.

"This was a bad time to do this," said Everson, referring to the erosion of professional ethics that was taking place in corporate America.

"We had this very corrupting influence of the tax shelter industry that had a bad impact on the legal and accounting profession," he said.

President Bush has asked for a $490 million, or 4.8 percent, increase in funding for the IRS. Two-thirds of the budget increase would be used to go after corporations and high-income taxpayers and fund criminal investigations. The 2005 budget proposes to hire 5,000 new IRS employees.

The IRS estimates that for every dollar invested in enforcement there is a direct return of $5 to $10.

E-mail: danderton@desnews.com