The IRS released new data estimating that the “tax gap” — the difference between the amount of taxes actually owed and the amount paid to the government before enforcement — reached $496 billion for the three-year period ending in 2016.
That figure is a nominal increase over the $438 billion estimate from 2011 and 2013 but is an improvement as a percentage of actual tax owed. The voluntary compliance rate rose from 83.6% to 85.1%.
In the past, tax gap estimates have spurred new legislation expanding information reporting and been used by the IRS to direct audit resources. Nearly $280 billion of the tax gap comes from underreporting of individual income tax, which includes tax on pass-through income. Corporate underreporting represents $37 billion.
The IRS will have opportunities to address these areas with increased enforcement activity thanks to the new $80 billion funding increase.
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