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New Tax Gap Projected to be $540B a Year: IRS

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Based on the projections for 2017-2019, the estimated average gross tax gap — the difference between what is owed and the amount paid on time — is projected to be $540 billion per year, the Internal Revenue Service reported Friday.

The associated voluntary compliance rate is projected to be 85.1%, the IRS said.

“The projection of enforced and other late payments is $70 billion, which yields a net tax gap projection of $470 billion,” the IRS said. “The associated non-compliance rate projection is 87.0%.”

The gross tax gap non-filing, underreporting and underpayment component projections for Tax Years 2017-2019 timeframe are $41 billion, $433 billion and $66 billion respectively, the IRS said.

The agency also reported Friday the latest tax gap estimates on tax years 2014 through 2016 show the estimated gross tax gap increased to $496 billion, a rise of over $58 billion from the prior estimate.

The new estimate is a slight improvement from 83.7% in a revised Tax Year 2011-2013 estimate, which dipped slightly from the original estimate released earlier, the IRS said.

After late payments and IRS efforts collected an additional $68 billion, the IRS estimated the net tax gap was $428 billion. “This increase in the tax gap can be attributed to economic growth,” the IRS said.

Between the two periods, 2011-2013 and 2014-2016, the estimated tax liability increased by more than 23%.

“The tax gap estimates translate to about 85% of taxes paid voluntarily and on time, which is in line with recent levels,” the IRS reported. “The new estimate is a slight improvement from 83.7% in a revised Tax Year 2011-2013 estimate, which dipped slightly from the original estimate released earlier.”

“After IRS compliance efforts are taken into account, the estimated share of taxes eventually paid is 87% for 2014-2016,” according to the IRS.

IRS Commissioner Chuck Rettig said Friday in a statement that the increase in the tax gap estimates “reflects that the IRS needs to do more, both in improving taxpayer service as well as working to improve tax compliance. The IRS remains committed to ensuring fairness and helping taxpayers while also working to better identify emerging compliance issues that contribute to the tax gap.”

The recent $80 billion funding addition, Rettig continued, “will help the IRS in many ways, increasing taxpayer education, significantly improving service to all taxpayers and focusing on high-income/high-wealth non-compliance in a fair and impartial manner supporting compliant taxpayers.”

Senate Finance Committee Chairman Ron Wyden, D-Ore., said in a statement Friday that “with at least half a trillion in unpaid taxes annually, the new IRS Tax Gap estimates confirm the urgent need for investments in the IRS to ensure taxes owed are taxes paid.”


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