US Tax Gap May Exceed $1 Trillion

On April 13, 2021, IRS Commissioner Charles Rettig testified before the Senate Finance Committee that the tax gap could exceed $1 trillion annually.  The tax gap represents the money the IRS is legally owed but has not collected.

This is significant because the IRS’s own official tax gap estimates pegged the average gross tax gap at $441 billion per year; however, that was based on data from 2011 thru 2013.  There are discussions on possible changes to the Code as a part of the administration’s proposed legislation including many recommendations related to tax procedure.  The Biden administration’s new budget proposes a 10% increase in IRS funding.  Some people predict that this could be the biggest year for changes to tax procedure since 1998.  

On May 11, 2021, the Senate Finance Committee’s Subcommittee on Taxation and IRS Oversight held a followup hearing on the tax gap.  IRS and Treasury Department officials testified before a Senate Finance subcommittee on the widening gap between taxes owed and taxes paid in the U.S.  Topics covered included modernizing the IRS, the Biden administration’s plan for the department, stricter consequences for repeat tax evaders, and targeting low-income and minority communities for audits instead of large businesses and the top 1 percent income earners.

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