IRS updates tax gap estimates

The Internal Revenue Service released a new set of tax gap estimates Thursday for tax years 2011, 2012 and 2013, but they indicate the tax compliance rate is mostly unchanged from previous years.

The gross tax gap means the difference between true tax liability for a given period and the amount of tax that is paid on time. In the latest estimate, the IRS said the average gross tax gap is $441 billion per year for 2011, 2012 and 2013. But after late payments and enforcement efforts are factored in, the net tax gap was estimated at $381 billion.

The tax gap estimates indicate that approximately 83.6 percent of taxes are paid voluntarily and on time, which is mostly in line with recent estimates. A revised tax year 2008-2010 estimate is 83.8 percent. After enforcement efforts are taken into account, the estimated share of taxes eventually paid is 85.8 percent for both periods, which is line with the tax year 2001 estimate of 83.7 percent and the tax year 2006 estimate of 82.3 percent.

Sign in front of IRS building in Washington, D.C.
The IRS building in Washington, D.C.

“Voluntary compliance is the bedrock of our tax system, and it’s important it is holding steady,” said IRS Commissioner Chuck Rettig in a statement Thursday. “Tax gap estimates help policy makers and the IRS in identifying where noncompliance is most prevalent. The results also underscore that both solid taxpayer service and effective enforcement are needed for the best possible tax administration.”

The IRS reiterated that it would continue to vigorously pursue people who aren’t compliant with their tax obligations. The IRS currently collects more than $3 trillion annually in taxes, penalties, interest and user fees. A one-percentage-point increase in voluntary compliance would bring in about $30 billion in additional tax receipts.

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