Tax Gap Act of 1986

Tax Gap Act of 1986 - Title I: Internal Revenue Service Publicity Campaign and Public Relations Program - Establishes a publicity campaign and public relations program to be conducted by the Secretary of the Treasury to inform the taxpaying public regarding tax reform, tax evasion, and other tax matters aimed at increasing compliance with the tax laws. Provides for a variety of publicity techniques to be used to institute the publicity campaign and public relations program. Authorizes appropriations.

Title II: Increased Taxpayer Compliance Through Improved Enforcement Activities and Strengthened Penalties and Information Reporting Requirements - Part I: Increased Audits - Directs the Secretary to initiate a highly publicized audit program targeted at: (1) the unreported legal source income for the period between 1981 and 1986; and (2) any other sector the Secretary determines to be growing in noncompliance. Authorizes additional appropriations to increase by 2,500 the number of audit examiners so as to double the number of returns audited each taxable year.

Part II: Public Disclosure of Certain Taxpayers - Permits the public disclosure of the identity of taxpayers where delinquent taxes are in excess of $10,000 or the delinquent taxpayer has become subject to enforcement actions.

Part III: Revision of Certain Penalties, Etc. - Provides penalties for: (1) failure to file certain information returns; (2) failure to furnish certain payee statements; and (3) failure to include certain information on certain returns and statements. Establishes certain waiver provisions, definitions, and special rules relating to the filing of information returns and statements.

Increases the penalty for failure to pay tax in certain cases from 0.5 percent per month to one percent per month.

Modifies the provisions relating to the tax penalty in instances involving negligence and fraud.

Increases the tax penalty for substantial underpayment of tax liability from ten percent to 20 percent.

Part IV: Information Reporting Provisions - Requires real estate brokers to report certain real estate transactions to the Internal Revenue Service.

Requires the head of every Federal executive agency which enters into any contract to report to the Internal Revenue Service certain information relating to the person with whom such agency contracts.

Requires the information reporting of State and local government income tax refunds and real and personal property taxes.

Requires any tax-exempt interest received for the taxable year to be shown on the tax return for such year.

Part V: Additional Authorizations - Authorizes additional appropriations for the Internal Revenue Service to increase the level of return processing and taxpayer service activities, to increase tax fraud and collection activities, and to increase litigation activities.

Title III: Tax Amnesty - Provides for a one-time amnesty from criminal and civil tax penalties for a taxpayer who: (1) files a written statement with specified information concerning any underpayment of tax; (2) pays the amount of such underpayment when filing the statement; and (3) within 30 days of notification of the amount of interest payable on any tax delinquent amount, pays the amount of such interest or delinquency. Permits installment payments in certain cases.

Provides that where there is a dispute with regard to an amount of the delinquent tax and it is resolved in favor of the taxpayer, the Secretary shall refund such amount with interest at the six-month Treasury bill rate.

Defines the amnesty period as a six-month period with a beginning date during calendar year 1987 which is selected by the Secretary.

Disallows such amnesty where: (1) there has been an underpayment assessed and a notice of deficiency with respect to the underpayment was mailed, or the taxpayer was put on notice of a substantive question of the taxpayer's tax liability; (2) there was fraud in seeking amnesty; or (3) a criminal investigation is pending.

Provides that the amnesty provisions apply only to underpayments of Federal tax for taxable periods ending before January 1, 1986.

Authorizes appropriations to inform the general public about the operation of the amnesty provisions.