According to politicians, small businesses are the engine of job growth, and it is for sure an engine, but to be honest – that is tax underpayment.

There is a gap between the amount that Internal Revenue System actually collects and the amount that it should collect, and that is called, a tax gap, which is roughly calculated to be around $350 billion for the last year.

Why is it like that? There are three reasons – tax-payers that do not file their incomes; tax-payers who file, but do not pay; and tax-payers, who file and lie, and they are the biggest group.

This mainly happens because of cash businesses. The workers are usually wage-earners, so their employer has to report their income to the IRS. But cash businesses can not be checked automatically by the IRS, and that is how this tax gap appears.

If we take for example the year of 2006, one quarter of sole proprietors have reported losses. The prices of houses were rising, the stock market was soaring, so the only people who were earning money according to the files were those going to work, where they get their daily or weekly wage.

And there are not really many variants in making small businesses to pay their share. Verifications of credit card transactions which came from third parties has helped a little, but other options like limiting the losses for tax purposes will affect in a negative way those people owning small business who report honestly.

So the only option that investigators have in order to catch such business is to check bank accounts, what the number of employees is and how much they are paid, and to check the high percentage of credit card sales. But such investigators also have to get a salary, so for the moment such money gap will remain.