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The U.S. tax gap is costing the Treasury more than $400 billion a year.
Last year, Rep. Michael Grimm (R-NY) sponsored a bill prohibiting the Internal Revenue Service from implementing or enforcing any part of the Affordable Care Act. "The IRS," Grimm charged, "has proven to be a scandal-ridden organization that has abused its authority by targeting individuals and organizations." Two years earlier, he called for the repeal (though not the replacement) of the ACA's tanning bed tax, declaring "This unfair punishment of small businesses must be repealed."

As it turns out, Rep. Grimm's jihad against the IRS was ironic and personal. On Monday, the former FBI agent surrendered to federal authorities who charged him with defrauding the United States out of over $1 million owed by his small business called—wait for it—Healthalicious.

As the New York Times reported:

The charges, unsealed on Monday, detail how Mr. Grimm concealed more than $1 million in gross receipts for the restaurant, and hundreds of thousands of dollars in employee wages, thus getting around federal and New York State law...

Between 2007 and 2010, the indictment says, Mr. Grimm paid "a significant portion" of employees' wages in cash, with many employees receiving about half their pay through direct deposit or check, and the other half in cash. He kept two sets of payroll records, and concealed the set that detailed what he was actually paying from payroll-processing companies and an accountant. That led to the payroll companies inadvertently filing erroneous tax forms, since the forms were based on the fake records.

In some cases, the indictment says, Mr. Grimm paid employees entirely in cash so that the payroll processors had no records of those employees at all.

If Grimm's alleged schemes to cheat Uncle Sam sound familiar, they should. It is now estimated that the federal government loses $500 billion annually to the "tax gap," that is, the difference between what American individuals and businesses owe in taxes and what they actually pay. (That staggering sum is larger than the projected budget deficit for this fiscal year.) And as the Government Accountability Office (GAO) found in its analysis of 2006 IRS data (see chart above), the single largest chunk of under-reporting comes from small businesses. As McClatchy summed it up three years ago, "Individual taxpayers who under-report business income are the main culprits."

They are aided and abetted by Congressional Republicans who have slashed the IRS budget for four years in a row and blocked the kinds of reporting requirements that could help clamp down on the types of law-breaking small business cheaters turn to most.

Cheaters, that is, apparently including Rep. Michael Grimm.

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