Each year the government loses 17 cents out of every dollar due on income taxes because of cheating by taxpayers. The cheating may take the form of not reporting income or taking nonexistent or unjustified deductions. The total loss to the government is more than $100 billion a year. This represents the unpaid taxes of otherwise honest Americans, not the additional tens of billions hidden by drug czars and other hardened criminals. If all taxes were properly collected, a portion of our federal deficit could be wiped out. The most frequent offenders are the self-employed. A General Accounting Office (GAO) study revealed that auto dealers, restaurateurs, and clothing store operators underreport their taxable income by nearly 40 percent. Doctors, lawyers, barbers, and accountants underpay (cheat?) on 20 percent of their revenues.The most proficient of the nonreporters are in the food-service industry. Collectively, waiters and waitresses fail to report 84 percent of their tips, according to the GAO. Claiming deductions for dependent children that do not exist is another favorite approach. In 1987, the IRS began requiring taxpayers to report and verify the Social Security numbers of all dependents over five years of age. The following year 7 million fewer dependents were claimed as deductions. It seems that many people had been listing the same child two or three times and even claiming dogs, cats, and birds as tax-deductible dependents. Of course, not all feel guilty about not paying their full share of taxes. A shipyard manager who did not report income from yacht repairs on the weekend told Money magazine, “The government squanders the money I already pay. Why give more?" How could the reduction of income tax cheating potentially impact the federal deficit?Provide examples of creative deductions that some taxpayers attempted to claim as tax-deductible dependents.

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Each year the government loses 17 cents out of every dollar due on income taxes because of cheating by taxpayers. The cheating may take the form of not reporting income or taking nonexistent or unjustified deductions. The total loss to the government is more than $100 billion a year. This represents the unpaid taxes of otherwise honest Americans, not the additional tens of billions hidden by drug czars and other hardened criminals. If all taxes were properly collected, a portion of our federal deficit could be wiped out. The most frequent offenders are the self-employed. A General Accounting Office (GAO) study revealed that auto dealers, restaurateurs, and clothing store operators underreport their taxable income by nearly 40 percent. Doctors, lawyers, barbers, and accountants underpay (cheat?) on 20 percent of their revenues.The most proficient of the nonreporters are in the food-service industry. Collectively, waiters and waitresses fail to report 84 percent of their tips, according to the GAO. Claiming deductions for dependent children that do not exist is another favorite approach. In 1987, the IRS began requiring taxpayers to report and verify the Social Security numbers of all dependents over five years of age. The following year 7 million fewer dependents were claimed as deductions. It seems that many people had been listing the same child two or three times and even claiming dogs, cats, and birds as tax-deductible dependents. Of course, not all feel guilty about not paying their full share of taxes. A shipyard manager who did not report income from yacht repairs on the weekend told Money magazine, “The government squanders the money I already pay. Why give more?"

How could the reduction of income tax cheating potentially impact the federal deficit?
Provide examples of creative deductions that some taxpayers attempted to claim as tax-deductible dependents.

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