U.S. Likely Failing to Collect $1 Trillion a Year in Taxes

The tax gap map for 2011 to 2013 “does not include any focus with respect to virtual currencies, which I indicated now is about a $2 trillion market cap” or “much information” about foreign sourced income as well as illegal-source income, “which is still taxable and we do chase,” Rettig said.

Also, Rettig noted that reports issued in the last two weeks by two IRS researchers in the agency’s Research, Applied Analytics and Statistics Organization “indicated that the top 1% of all taxpayers by high income account for as much as an additional $175 billion in the tax gap computations,” which was derived by looking at two issues — pass-through entities and offshore income associated with the top 1%.

“If you aggregate the points that I’m talking about … and there are more — I’ve just referenced the ones most highly visible. If you add those in, I think it would not be outlandish to believe that the actual tax gap could approach, and possibly exceed, $1 trillion per year,” Rettig told the senators.

Wyden said in the hearing that the IRS “needs more resources to tackle this [tax gap] challenge, but it’s only just beginning to recover from a decade of Republican budget cuts,” which he argued “hobbled our ability to root out cheating by high flyers and their high-priced accountants.”

Criminal tax evasion cases, Wyden continued, “have fallen nearly by half. The number of IRS tax enforcement staff — the experts who know how to break down tax evasion cases — has fallen by nearly a third.”

The IRS, Wyden said, “needs more highly skilled investigators and better technology to keep up with these modern crooks.”

He noted that the Biden administration’s new budget proposal calls for a 10% increase in IRS funding.

“That’s a good start. I believe there’s room for a more comprehensive strategy that’ll lower the tax gap,” Wyden said.