New Tax Gap Estimates from IRS: Compliance Rates Remain Unchanged

Every few years, the Internal Revenue Service looks at the latest tax gap: The difference between the taxes that are owed and the taxes that have been paid. The higher the tax gap, the more money the government doesn’t collect for needed programs and infrastructure.

With the latest report, the IRS showed that the tax gap has remained essentially unchanged over the last several years.

“Voluntary compliance is the bedrock of our tax system, and it’s important it is holding steady,” said IRS Commissioner Chuck Rettig in a press release. “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 New Tax Gap

The latest IRS report covers the tax years 2011, 2012, and 2013. The average tax gap from those years is $441 billion per year. The gross tax gap is simply the difference between the taxes owed and the taxes paid. The net tax gap factors in the amount the IRS spent on enforcing the debts and taking away the penalties charged. For those same years, the net tax gap was an average of $381 billion per year.

To understand that number better, it’s helpful to look at percentages. About 83.6 percent of taxes that were owed were actually paid on time.

Comparing Previous Years

The IRS conducts a study of the tax gap every few years to determine if collection and enforcement efforts need to be tweaked to minimize the gap.

The previous study looked at the tax years 2008, 2009, and 2010. That study found that there was a tax gap of 83.8 percent. Though the gap was technically higher, the amount was so marginal that the rate was essentially the same.
Taking into account enforcement measures, the net tax gap was 85.8 percent for the periods covered by both studies.

If we look farther back, the numbers remain essentially the same. The tax gap estimate for the tax year 2006 was 82.3 percent, and the tax gap estimate for the tax year 2011 was 83.7 percent.

Enforcement Efforts

While those tax gap numbers seem huge – and they are – it is also important to think of them relative to the larger picture. The IRS collects more than $3 trillion each year in taxes, as well as penalties and interest.
However, compliance is essential to the proper functioning of the IRS and the government as a whole. And even if the IRS were to increase the success of its enforcement efforts by only 1 percent, it would in an extra $30 billion each year.

Therefore, the IRS is committed to improving its enforcement efforts to collect more the taxes that are owed – plus the penalties and interest, of course. The IRS has found that third-party reporting such as these surveys helps to increase voluntary taxpayer compliance. Mandatory tax withholding from paychecks also increases compliance – assuming that the estimated withholdings are correct.

But these aren’t the only strategies that the IRS is using to improve tax payment compliance. The agency also engages in outreach and education efforts, works with partners, and more.

“Maintaining the highest possible voluntary compliance rate also helps ensure that taxpayers believe our system is fair,” Rettig said in the press release. “The vast majority of taxpayers strive to pay what they owe on time.

Those who do not pay their fair share ultimately shift the tax burden to those people who properly meet their tax obligations. The IRS will continue to direct our resources to help educate taxpayers about the tax requirements under the law while also focusing on pursuing those who skirt their responsibilities.”

Getting Legal Help

If you are one of those people who the IRS is targeting for overdue taxes, you should seek professional legal help. A tax attorney around Arizona might be able to negotiate your case so that you can pay less or you can avoid penalties. Or, an attorney may be able to audit your returns to reduce the amount you owe, either for that year or from other years. You could end up getting a refund from other years to cover the amount you owe for the year in question.

Silver Law PLC can help if you have received notice from the IRS that you owe taxes and penalties. Our tax attorneys will thoroughly review the details of your case and explore all the options for lowering your tax debt or reducing your penalties. We also represent clients who are facing criminal tax charges, those seeking innocent spouse relief, and those who need help with foreign tax reporting. There are many reasons why you may have the tax debt you do, and we’re ready to help. Call us today to speak with an experienced tax lawyer!

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