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New IRS Estimate Shows 11% Increase in Annual Tax Gap

Sept. 26, 2019, 6:09 PM

The annual tax gap, the difference between total taxes owed and taxes paid, grew by almost 11% to $381 billion compared to a revised version of the IRS’s last estimate.

IRS officials on a Sept. 26 call with reporters said that the primary reason for the increase was the improving economy coming out of the recession during the late 2000s and early 2010s. The new tax gap estimate covers years 2011 through 2013.

The last time the IRS released a tax gap estimate was more than three years ago.

The latest tax gap estimate translates to about 83.6% of taxes paid voluntarily and on time, the IRS said, noting that this figure is essentially unchanged from the revised 2008-2010 estimate of 83.8%.

“After enforcement efforts are taken into account, the estimated share of taxes eventually paid is 85.8% for both periods,” the agency said.

IRS Commissioner Charles Rettig said at a May conference the latest data doesn’t account for a large portion of the “underground economy,” such as tax evasion through the use of cryptocurrency. That is because the U.S. still had a heavily paper, rather than digital, economy during the time period covered by the estimate, he said.

Rettig in May said he is urging the agency’s research and analytics department to find ways to compile this data faster.

The IRS convened an expert panel over the summer consisting of academics, practitioners, statisticians, computer scientists, and social scientists to discuss the process of estimating the tax gap, the agency officials said on the call.

The IRS is currently compiling a report that will lay out options for revising the process going forward, the officials said.

To contact the reporter on this story: Allyson Versprille in Washington at aversprille@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com

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