Record High Tax Evasion Depletes $688 Billion from US Economy in 2021

The Internal Revenue Service (IRS) reported that tax evasion cost the US economy a staggering $688 billion in 2021. This represents the largest shortfall ever recorded, with an increase of over $138 billion compared to estimates for tax years 2017 to 2019.

To address this issue, the IRS is taking urgent steps to increase compliance among taxpayers and reduce this gap.

The agency is primarily focusing on high-income earners who have been evading their tax obligations. This effort is crucial in ensuring fairness in the tax system and protecting those who diligently pay their taxes.

To tackle tax violations among the wealthiest individuals, the IRS has received a portion of the $80 billion from the Biden administration’s Inflation Reduction Act.

These funds are being used to target high earners who have been avoiding their tax obligations, aiming to close the so-called ‘tax gap’. IRS Commissioner Danny Werfel has emphasized the importance of these increased compliance efforts in key areas.

The IRS also announced that audits on households earning less than $400,000 a year will not be significantly ramped up. Despite the alarming figures, IRS data shows that the vast majority of Americans voluntarily and punctually pay their taxes.

The overall compliance rate for the 2021 tax year is projected to remain relatively stable at 86.3 percent after audits and other enforcement actions.

However, hundreds of billions of dollars in unpaid taxes still accumulate annually due to non-filing, underreporting, and underpayments. The projected tax gap does not include late payments or IRS enforcement actions.

In an effort to combat tax violations among the country’s wealthiest individuals, the IRS has turned to artificial intelligence. Last month, the agency announced that it has used AI to investigate 75 of the largest business partnerships in the US, each having an average of more than $10 billion in assets.

While the IRS is taking significant steps to address this issue, these figures emphasize the importance of new funding in implementing more effective compliance efforts to collect taxes.

This article appeared in StatesmanPost and has been published here with permission.

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