New tax bill gives IRS more clout to ensure people pay up

Some taxpayers have been living on the thin edge of the law - underreporting interest income, claiming questionable deductions, hiding cash in tax shelters of dubious repute. Or they're simply restaurant employees who've never quite been able to keep track of tips.

Those who fit the above description had better start looking over their shoulders. The long arm of the Internal Revenue Service (IRS) just got longer.

Congress estimates the Tax Equity and Fiscal Responsibility Act of 1982 will raise $98.3 billion through 1985. About one-third of that revenue will come from compliance provisions intended to force payment of tax already owed under existing law.

''This is basically a compliance and tax reform bill,'' says Bernard Barnett, national tax director at Seidman & Seidman.

Compliance is an acute problem. The IRS estimates US citizens didn't pay $95 billion in taxes this year. That's triple the tax gap of eight years ago - and enough lost revenue to almost balance the federal budget.

IRS officials have long said the most effective way of increasing compliance is withholding taxes at the source of income. Withholding from dividend and interest income - an oft-proposed, oft-rejected measure - is the biggest single enforcement provison in the new tax bill, estimated to raise about $10.5 billion by 1985 (a portion of that revenue will come from accelerated cash flow, rather than increased compliance).

''Like it took Nixon to go to China, it took a Republican President to get this through Congress,'' says Mr. Barnett.

The new bill also expands withholding from pensions, requiring that retirees request an exemption if they don't want taxes taken automatically from their benefit checks.

Other areas hit with new compliance provisions:

* Tip income. Beginning next year, non-fast-food restaurants will be required to report 8 percent of receipts as employee tips, giving the IRS information useful in checking employee returns.

Though focused on a narrow portion of the working population, this provision addresses what the IRS considers flagrant abuse. The 1981 ''tax gap'' from tips was $2.3 billion, according to IRS figures.

''Tip reporting will have an effect. No question about that,'' says Bob Brown , an accountant with Peat, Marwick, Mitchell.

* Tax shelters. The tax bill contains new civil penalties aimed at those who peddle dubious tax shelters. Under the provision, tax shelter salesmen can be hit with a stiff fine if they have ''reason to know'' they are purveying investments with fraudulent tax benefits.

* Questionable deductions. Those who substantially understate their tax by claiming questionable deductions will now also be subject to hefty new fines. The penalty can be avoided, however, by in essence telling the IRS ''I'm claiming this, but you might not agree with it.''

''This may bring some caution to people who thought the worst thing that could happen would be that their deductions would be disallowed,'' says Arnold Koonin, tax partner at Coopers & Lybrand.

The new tax bill also increases penalties for failure to file a return and omission of taxpayer identification numbers, expands the categories of income subject to information reporting, requires all interest payable under tax law be compounded daily, and directs state and local governments to send the IRS lists of all state and local income tax refunds.

Will the IRS's new enforcement tools work?

''They certainly will present a psychological barrier to taking chances,'' says Robert Rosen, tax partner at Ernst & Whinney.

''If these penalties are actively enforced, they will have an impact. If they're not enforced, then we're right back where we started,'' speculates Mr. Koonin.

The compliance provisions will almost certainly frighten many investors and advisers into taking less aggressive tax positions, say tax experts. Tax shelters, in particular, are likely to be more tame.

But they add that IRS-taxpayer confrontations will probably rise. And the increased compexity of the tax code, they way, will also mire many who are doing their best to comply, but inadvertently break a rule.

''There are so many more fines now. It's that much easier for an innocent person to get trapped, particularly smaller businesspeople,'' says Don Wiese, tax partner at Touche, Ross. ''I don't know where a happy medium is.''