Robert Kao¹, John Lee², Richard Lee³

Abstract: Tax evasion costs the IRS and state governments billions of dollars each year. The proposed LG tax system is used to reduce or prevent potential evasion and tax fraud by employees against governments via tax withholding reports. The IRS and many state governments have two tax systems for employers and individuals. The different systems would bring about employers and individuals to have diverse standards or references to the similar tax rates. On another occasion, before sending out tax refunds from the IRS and state governments, the detailed tax information was unclear and not determined. The W-2 form provides only limited information on processing individual returns. This paper explores these two major loopholes and provides proposed tax withholding reports with the LG tax system to replace the W-2 form for reducing some potential tax noncompliance issues. The significant costs would then be saved for both individuals and governments.

Key words: tax compliance; individual income tax; linear and gradual tax system