Tax Cheats Cost US $1 Trillion per Year, IRS Says

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The IRS says tax cheats could cost the U.S. $1 trillion per year in revenue, or more than double the agency’s last official estimate.

Between 2011 and 2013, the IRS estimated the tax gap—the difference between taxes legally owed and actual revenue collected—was $441 billion annually. New estimates are due next year, but the gap has likely grown and “could approach and possibly exceed” $1 trillion per year, IRS commissioner Charles Rettig told the Senate Finance Committee on Tuesday. 

The widening gap is partly due to underreported income from the cryptocurrency market, which is worth about $2 trillion and was not included in the last official estimate, Rettig said. Other factors contributing to the shortfall include rising foreign-source income, income from illegal activity, and a shortage of IRS auditors and investigators due to budget cuts, he explained. 

“The fact is, our economy has changed and expanded,” said Sen. Ron Wyden (D-Ore.), chairman of the Senate Finance Committee. “In 2011, one bitcoin couldn’t buy you a ham sandwich. Today, cryptocurrencies and other technologies create huge new opportunities for tax cheats to rip off the American people."

With a $1.7 trillion federal budget deficit in the first six months of fiscal year 2021 and more spending plans—including a potential $2 trillion infrastructure bill—on the table, tougher enforcement has become a centerpiece of President Joe Biden’s plan to help pay for the expenses. Earlier this month, Biden said his administration aims to close loopholes for wealthy individuals and large corporations.

Biden has also committed to investing more in the IRS to give it the resources to track down cheaters. In the last decade, the IRS has lost 17,000 enforcement personnel due to budget cuts, said Rettig.

“The IRS absolutely needs more resources across all lanes of the Internal Revenue Service,” Rettig told the committee.