The IRS estimates that $68 billion of the annual $345 billion gross tax gap for 2001 -- or 20 percent -- was due to 61 percent of sole proprietors, who own unincorporated businesses by themselves, underreporting their net income.

GAO found that IRS's two main sole proprietor enforcement programs -- the Automated Underreporter Program and audits -- have limited reach and contact less than 3 percent of estimated noncompliant sole proprietors. This is in part due to inconvenient information reporting, said GAO. Also, examinations of sole proprietors yield less in additional tax assessed and cost more to conduct than examinations for other taxpayers.

"However, because of the extent of sole proprietor noncompliance, any effect that examinations have on voluntary compliance by other sole proprietors could result in significant revenue," the report states.

GAO said the Treasury's tax gap strategy should cover sole proprietor compliance and coordinate with broader tax gap reduction efforts, with specific proposals.

The report is available at http://www.gao.gov/cgi-bin/getrpt?GAO-07-1014

Correction: This article was originally and incorrectly titled "Big Chunk of Tax Gap Blamed on Sole Practitioners."  We have replaced "Practitioners" with "Proprietors" and regret the error.