Tax Gap Hits $458 Billion Per Year: Who’s Not Paying Their Tax Debt?

The Internal Revenue Service has released new estimates of the “tax gap,” the amount of tax liability faced by taxpayers that is not paid on time. The agency’s estimate of this gap between what is owed in taxes, and what the IRS receives, at about $400 billion annually.

Estimating the gap requires a “major statistical effort,” according to the IRS, so the gap is only estimated every few years. The last full update reported showed that the compliance rate for tax year 2006 was basically unchanged from the report on tax year 2001. And again, IRS reports that the tax gap is essentially unchanged since it last reported this figure ten years ago.

“We need to keep in mind several facts when considering this data,” said Robert Kerr, Senior Director, Government Relations for the National Association of Enrolled Agents (NAEA). “The first is that IRS takes years to estimate the tax gap, so the newest data considered is from tax years 2008-10, before IRS’ budget took an approximately $1B hit (annually) and before staffing dropped by some 16,000 or so. Let’s not conclude that a flat tax gap indicates tax compliance hasn’t taken a hit because of reduced IRS resources. We won’t know that for years.”