America losing billions to tax cheats
Charles Rettig, the IRS commissioner, estimated that the United States could be cheated out of as much as $1 trillion in unpaid taxes annually. Some experts dispute that amount; however, our country is losing hundreds of billions of dollars.
The tax gap has surged in the last decade. The tax gap is the amount of taxes that are owed but are not. paid in a timely or voluntary manner. The previous official estimate reported by the IRS was an average of $441 billion per year was underpaid from 2011 to 2013.
According to Mr. Rettig, most unpaid taxes are due to tax evasion by the rich and large businesses. He attributed the expanding tax gap to several reasons. Taxpayers are aware of the decline in IRS auditors, and realize they are far less likely to get caught underpaying their taxes. The rapidly growing cryptocurrency has little regulation and has been a major source of tax evasion.
The U.S. Government Accountability Office (G.A.O.) was recently asked to report tax trends. The report stated that millions of taxpayers don’t report and pay their actual tax liability.
The U.S. Treasury reported, “A well-functioning tax system requires that everyone pays the taxes they owe. Today, the “tax gap”—the difference between taxes that are owed and collected—totals around $600 billion annually and will mean approximately $7 trillion of lost tax revenue over the next decade.”
Tax evasion is concentrated in the top income level because higher-income taxpayers can use accountants and tax preparers who help shield them from paying their actual tax liability. Many tax professionals know the IRS audit rates have drastically declined, which has caused voluntary compliance rates to be lower.
Mr. Rettig said, “the size of the IRS’s enforcement division has declined sharply in recent years Mr. Rettig said, with its ranks falling by 17,000 over the last decade.” The IRS has the fewest experienced auditors since World War II.
From tax years 2010 to 2019, audit rates have decreased for all income levels. On average, the audit rate decreased from .9 percent to less than .3 percent. Audit rates with the largest decrease were from people with over $200,000 in income. These audits are generally more complex than lower-income taxpayers. The decrease in audits of people with complex tax returns is due to the decline in experienced auditors.
The audit rate for low-income taxpayers claiming the Earned Income Credit was higher than average. Audits of the taxpayers who claimed the Earned Income Credit resulted in the most additional tax per audit hour other than the highest-income taxpayers. IRS officials explained that Earned Income Credit audits are primarily audits completed by correspondence, which requires less time. Also, lower-income audits tend to have a higher rate of change to taxes owed.
“The fact is that nurses and firefighters have to pay with every paycheck, and so many highfliers can get off,” said Senator Ron Wyden of Oregon.
David Zubler is a tax accountant and Enrolled Agent in East Tennessee, providing tax strategies and representing clients before the IRS and has over 25 years of tax experience. He is the author of six tax books and has shared tax advice on national TV. He is the founder and president of Your Tax Care. The company provides business and tax education, including David’s one-minute tax tip radio recordings at YourTaxCare.com. David can be reached at (865) 363-3019 or contacted by email at email@example.com.