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Cost of our cheatin' and confused hearts: $345B
That's the IRS estimate of the tax gap for 2001.

NEW YORK (CNNMoney.com) - The IRS has updated its estimate for tax year 2001 of what it calls the tax gap -- the difference between what taxpayers should have paid and what they did pay on time.

The agency's new estimate: $345 billion. Since tax year 2001, however, IRS enforcement efforts have managed to recover $55 billion of that amount, bringing the net tax gap to $290 billion.

In March of this year, the IRS estimated the tax gap would fall within a range of $312 billion to $353 billion.

The IRS attributes the majority of the gap to underreporting of income. To a much lesser degree, nonfiling and underpayment contributed as well.

But the gap didn't result just from citizens who chose not to report some of their income. The IRS also noted the complexity of the tax law plays a significant role in creating the tax gap.

"Helping taxpayers better understand their obligations under the current tax law will facilitate compliance, but simplifying the tax code would have a big impact on reducing the tax gap," said IRS Commissioner Mark W. Everson in a statement.

Underreported business income accounted for $109 billion of the total $197 billion in underreported individual income tax, the majority of it coming from non-farm sole proprietors of small businesses. They file income on Schedule C, where there is little or no third-party reporting or withholding.

The tax agency found that where there was third-party reporting, compliance was highest.

Efforts to reduce the tax gap having included an increase in audits -- last year, there were more than 1.2 million, up 20 percent from the previous year. Among those, the audits of taxpayers earning more than $100,000 rose to 221,000, the highest number in 10 years.

See a breakdown of the tax gap figures here.

More on taxes

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