Judging from his tax returns, Dinh Kim Huynh wasn't getting rich in the manicure business. In 2000, Huynh and his wife claimed taxable income of just $7,578 from their two nail salons in Southern Maryland -- so little that they qualified for a tax credit for the working poor. Their tax bill was $195.But like millions of American business owners who trade primarily in cash, Huynh was not altogether honest with the Internal Revenue Service. When IRS agents poked around, they discovered four cars in Huynh's name, including a $77,000 Mercedes; receipts for diamonds and Rolexes in a closet at his Waldorf home; and a videotape of Huynh flashing a five-carat ring during the purchase of yet another vehicle at a local Honda dealership, court records show.
Huynh, 57, appears to be an especially bold contributor to the tax gap, the difference between what Americans owe the federal government and what they actually pay. By the most recent estimate, the tax gap is $345 billion. Unreported business income accounts for nearly a third of that amount. According to IRS data, U.S. shopkeepers, mechanics, farmers and landlords will pay less than half the taxes they owe on the returns that must be filed by midnight Tuesday.
The tax gap is becoming a popular target in Washington, where the White House and the Democrats who control Congress are eager to find new sources of cash without raising tax rates. But narrowing the gap would require potentially invasive new reporting requirements and ramped-up IRS audits that would inconvenience honest taxpayers and businesses even as they detect cheaters.
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