IRS chief says some $1T in taxes going uncollected annually
His estimate goes far beyond the official $441 billion difference between taxes paid and taxes owed annually, the so-called tax gap, reported by the IRS.
The amount of taxes going uncollected by the federal government could be as much as $1 trillion or more per year, IRS Commissioner Chuck Rettig said Tuesday.
His estimate goes far beyond the official $441 billion difference between taxes paid and taxes owed annually, the so-called tax gap, reported by the IRS, which is based on figures from 2011-2013. The next official estimate will come out next year.
A confluence of factors suggest the tax-gap growth Rettig projected, including increased virtual currency holdings, which weren’t figured in the 2011-2013 period but now amount to more than $2 trillion worldwide, he said. In testimony before the Senate Finance Committee, Rettig also said counting foreign-source income and illegal-source income would increase the tab, too, and that IRS research indicates $175 billion in underpayments among the wealthiest Americans.
With all those reasons in mind, it wouldn’t be outlandish to think the tax gap “could approach and possibly exceed $1 trillion per year,” Rettig said.
What can help: Sen. Rob Portman (R-Ohio) said he’s crafting a bill to define virtual currency for tax purposes and improve information reporting on it. Finance Committee Chair Ron Wyden (D-Ore.) also asked Rettig what changes in law and regulations could improve the overall tax gap situation.
Rettig said better information reporting from third parties would help the IRS boost collections. He also called for more electronic tax return filing, error correction authority for the IRS and regulation of tax return preparers, in addition to requesting sustained budget improvements.
President Joe Biden just proposed a 10.4 percent increase in spending on the IRS, with most of the additional money tabbed for enforcement. Rettig admitted the IRS is currently “outgunned” in trying to keep pace with all the tax avoidance and cheating, and he endorsed the idea of mandatory funding for the agency that Sen. Elizabeth Warren (D-Mass.) said she would soon propose in legislation.
It would guard the agency’s appropriations, currently delivered on a discretionary basis from Congress, from unpredictability and political whim, she said.
“The solution isn’t just more funding, it’s about more stable funding that’s targeted toward catching the biggest fish and that’s protected from lobbyists that try to chip away at that funding,” Warren said.
Lots to do: Enforcement and collections aren’t the only mandates for the IRS, though. The agency in the past year has issued billions of dollars in economic relief Congress authorized to help individuals and businesses amid the coronavirus pandemic and has been given responsibility for delivering annual child tax credit payments more frequently throughout the year, beginning July 1, a source of concern for Republicans on the committee.
“To date, absent any contrary indication from the IRS, I am left with the impression that the aggressive July 1 payment deadline imposed by Congressional Democrats will be challenging to meet by an IRS staff that is already stretched thin, without cutting corners or reassigning staff who should be focused on processing tax returns,” Sen. Mike Crapo of Idaho, the top Republican on the committee, said in his opening statement at the hearing.
Both Democrats and Republicans quizzed Rettig on service shortcomings such as lengthy phone delays taxpayers experience when calling the IRS with questions. Rettig said call volumes have doubled over the past year and reached a peak of 1,500 calls per second at one point.
The IRS is still processing 1.7 million tax returns filed last year as part of a backlog that built up due to the pandemic impact on the IRS workforce. Mandatory overtime — including on weekends — is part of the effort to finish that work, Rettig said. The agency’s mail backlog grew to more than 20 million but has since been cut to a normal level, he said.