The amount of unpaid taxes owed to the Internal Revenue Service will continue to grow, according to projections released Thursday by the federal tax administration agency.
For the 2021 and 2020 tax years (the latest IRS estimates), the total “tax gap” is expected to surge to $688 billion and $601 billion, respectively. This marks a significant jump compared with past years – the total tax gap is expected to be $550 billion in 2017-2019 and $496 billion in 2014-2016.
One of the biggest challenges facing the IRS is making sure people actually pay their taxes. Even though agency data shows that the vast majority of Americans voluntarily pay their taxes on time, hundreds of billions of dollars in unpaid taxes still pile up every year, and the tax gap is estimated to be growing.
IRS Commissioner Danny Warfel said the widening tax gap estimates “underscore the importance of enhanced compliance efforts.” The IRS is using some of the $80 billion it received from the Biden administration’s inflation-reduction bill for this purpose.
“We are adding focus and resources to compliance issue areas, including high-income and high-wealth individuals, partnerships and corporations,” Wayfair said in a statement. “These measures are urgent on many fronts, including Increase fairness in the tax system, protect taxpayers and work to close tax gaps.”
The tax gap may also be wider than expected. Some forecasts from last year have been revised upwards. For example, the total tax gap for 2017-2019 was initially projected at $540 billion, but later estimates increased by $10 billion.
IRS officials noted in a conference call with reporters that the 2021 estimates assume that noncompliances have not changed since the most recent 2014-2016 audits, meaning the current projections do not reflect the changes that have occurred amid the pandemic. reporting behavior. But changes in economic activity and changes in the structure and type of income reported in 2021 are taken into account – so as the total tax liability increases, so does the tax gap.
Agency officials added that Inflation Reduction Act funds are also being used to build more sophisticated methods designed to measure recent behavioral changes.
Thursday’s announcement also marks the first time a tax gap forecast has been provided for a single tax year.
The projected total tax shortfall — made up of unpaid taxes resulting from failure to file, underreporting and underpayment — does not take into account late payments or IRS enforcement. In 2021, the IRS expects to bring in $63 billion in revenue from late payment and enforcement efforts, bringing the estimated net tax shortfall to $625 billion.
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