Final answer:
Failing to report income to the IRS is considered tax evasion and creates a significant shortfall in government revenue, potentially leading to enhanced enforcement efforts. US residents must file an income tax form to fulfill their tax obligations, and the decline in IRS audits has exacerbated the issue of unreported income.
Step-by-step explanation:
Failing to report income to the Internal Revenue Service (IRS) involves not disclosing certain revenues when filing your tax forms, which is considered tax evasion. This act significantly impacts the revenue collected by the government, as it could result in a shortfall of approximately $400 billion yearly, which represents around 15% of all taxes owed.
To curb this issue of tax evasion or 'free riding', the US government would have to allocate more resources to the monitoring and enforcement of tax laws. Moreover, every US citizen and resident is mandated to file an income tax form, typically using a 1040EZ tax form for simplicity unless their financial situation requires a more detailed form.
This requirement ensures that the government can collect tax revenues essential for funding various public goods and services. However, a decline in the audit rates for tax returns, especially among high earners, due to decreased resources dedicated to IRS enforcement, has made the problem of unreported income more acute.