{"id":1432696,"date":"2023-10-13T16:40:00","date_gmt":"2023-10-13T20:40:00","guid":{"rendered":"https:\/\/bugaluu.com\/news\/?p=1432696"},"modified":"2023-10-13T16:40:00","modified_gmt":"2023-10-13T20:40:00","slug":"irs-announces-688-billion-tax-gap-in-2021","status":"publish","type":"post","link":"https:\/\/bugaluu.com\/news\/irs-announces-688-billion-tax-gap-in-2021\/1432696\/","title":{"rendered":"IRS Announces $688 Billion Tax Gap In 2021"},"content":{"rendered":"

IRS Announces $688 Billion Tax Gap In 2021<\/span><\/p>\n

\n

Authored by Naveen Athrappully via The Epoch Times,<\/em><\/a><\/p>\n

The tax gap\u2014the difference between what is owed and paid to the government\u2014widened to $688 billion in tax year 2021, which the IRS claims \u201cunderscores the importance\u201d of the need for increased compliance.<\/strong><\/p>\n

<\/a><\/p>\n

For tax year 2020, the IRS\u00a0estimates<\/a>\u00a0the gap to be $601 billion. For 2021, it is estimated to be $688 billion, which is \u201ca significant jump\u201d from previous estimates, according to an Oct. 12\u00a0news release<\/a>. The 2021 tax gap is $192 billion more than estimates from 2014-16 and $138 billion more than 2017-19.<\/p>\n

This is the first time the IRS is making tax gas projections on an annual basis. Previously, the number was published once every three years. Moving forward, the IRS plans to publish the data yearly.<\/p>\n

As the 2020 and 2021 tax gap numbers are estimates, they can be revised up or down at a later time.<\/p>\n

\u201cThis increase in the tax gap underscores the importance of increased IRS compliance efforts on key areas,\u201d said IRS Commissioner Danny Werfel. \u201cWith the help of Inflation Reduction Act funding, we are adding focus and resources to areas of compliance concern, including high-income and high-wealth individuals, partnerships, and corporations.\u201d<\/p>\n

\u201cThese steps are urgent in many ways, including adding more fairness to the tax system, protecting those who pay their taxes, and working to combat the tax gap.\u201d<\/p>\n

While the IRS focuses on boosting its compliance rate and closing the tax gap, there are concerns that such efforts could affect smaller businesses and low and middle-income households.<\/p>\n

Last month, the agency\u00a0announced<\/a>\u00a0that it was looking to fill more than 3,700 positions nationally to assist with \u201cexpanded enforcement work\u201d focusing on complex partnerships, large corporations, and high-income earners.<\/p>\n

IRS commissioner Mr. Werfel said that the new employees at the agency would not target individuals and entities making less than $400,000 annually.<\/p>\n

However, such claims fall flat given that a recent report by the Treasury Inspector General for Tax Administration (TIGTA), an IRS watchdog, pointed out that the agency does not have a \u201cunified or updated\u201d definition of high-income taxpayers.<\/p>\n

\u201cThe high-income terminology is being used loosely inside the IRS with no common understanding of what the term means,\u201d the watchdog said while pointing out that the agency \u201cstill uses $200,000 as the default high-income threshold.\u201d<\/p>\n

An annual income of $200,000 is \u201cno longer a reasonable standard for high earners given inflation since 2005,\u201d the TIGTA report stated.<\/p>\n

In a May 16 testimony before the Senate Finance Committee, Chris Edwards of the CATO Institute\u00a0said<\/a>\u00a0that the IRS intends to assess the income of businesses without accounting for losses.<\/p>\n

Increased audits would likely affect \u201cmainly small to midsize businesses, who actually may have [adjusted gross income] under 400,000.\u201d<\/p>\n

IRS\u2019 Compliance Efforts<\/h2>\n

The $688 billion tax gap for 2021 is the \u201cgross\u201d tax gap. An additional $63 billion in revenues is expected from IRS enforcement efforts and taxpayers\u2019 late payments, which would result in a \u201cnet\u201d tax gap of $625 billion.<\/p>\n

According to the agency, the voluntary compliance rate (VCR) of tax filers \u201cremains relatively steady.\u201d VCR measures the share of taxes paid voluntarily and corresponds to the \u201cgross\u201d tax gap. The net compliance rate (NCR) measures the share of taxes that are ultimately paid, corresponding to the \u201cnet\u201d tax gap.<\/p>\n

\u201cThe voluntary compliance rate of the U.S. tax system is vitally important for the nation. A one-percentage-point increase in voluntary compliance would bring in about $46 billion in additional tax receipts,\u201d according to the agency.<\/p>\n

For tax years 2020 and 2021, the VCR is estimated to be around 85 percent. Adding in IRS\u2019 compliance efforts, this number comes to 86.3 percent for 2021, which is close to the 87 percent rate for tax years 2014-16.<\/p>\n

The IRS attributes the slight dip in compliance rates to \u201cchanges in the types of income and how that income is reported.\u201d The agency plans to take a \u201cvariety of steps\u201d to boost VCR, including improving taxpayer services.<\/p>\n

As part of its increased compliance efforts, the IRS\u00a0announced<\/a>\u00a0in July that it was going after \u201chigh-income individuals evading taxes.\u201d<\/p>\n

\u201cThe IRS is working to ensure [that] high-income filers pay the taxes they owe,\u201d the agency said on July 14. \u201cIn recent months, our Criminal Investigation team has closed a lengthy list of cases where wealthy taxpayers have been sentenced for tax evasion, money laundering, and filing false tax returns.\u201d<\/p>\n

At the time, the IRS stated that it had closed 175 delinquent tax cases for millionaires in the previous months. The agency received $38 million from delinquency cases against wealthy taxpayers.<\/p>\n

In August, the IRS\u00a0said<\/a>\u00a0it intends to go after \u201clarge, complex partnerships\u201d as part of making business entities pay the tax they owe. Partnerships allow businesses to pass their incomes and losses to their partners, thus avoiding getting taxed as corporations.<\/p>\n

As the IRS has not defined what a \u201clarge, complex partnership\u201d means, such business structures have risen in popularity.<\/p>\n

A report by the Government Accountability Office (GAO) found that only 54 large partnerships out of the more than 20,000 registered ones were audited by the IRS in 2019. This translated into an audit rate of just 0.27 percent, which is below the audit rate for people making $25,000 per year or less.<\/p>\n<\/div>\n

Tyler Durden<\/a><\/span>
\nFri, 10\/13\/2023 – 12:40<\/span><\/p>\n

\u200bhttps:\/\/www.zerohedge.com\/personal-finance\/irs-announces-688-billion-tax-gap-2021<\/a>\u00a0<\/p>\n

\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"

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