The Tax Gap

By Mark Bertrang, The Creator of the Financialoscopy® on Thursday, October 15th 2020


I’ve heard that you can’t cheat death or taxes, but maybe you can cheat one of them.

The Internal Revenue Service periodically estimates the tax gap to gauge historical overall compliance of all types of taxpayers with their federal tax obligations. The estimates take into account federal taxes due as well as refundable and non-refundable tax credits.

Sustaining and improving taxpayer compliance is important because small declines in compliance cost the nation billions of dollars in lost revenue and shift the tax burden away from those who don't pay their taxes onto those who pay their fair share on time every year. Understanding the elements of the tax gap enables policymakers and tax administrators to make better decisions regarding how to allocate resources used to administer the tax code. All initiatives by the IRS to improve tax collection are intended to narrow the tax gap and increase compliance.

The latest estimates for tax years 2011, 2012 and 2013 show the nation's tax compliance rate is substantially unchanged from prior years. The average gross tax gap was estimated at $441 billion per year based on data from those three years. After late payments and enforcement efforts were factored in, the net tax gap was estimated at $381 billion.

The tax gap estimates translate to about 83.6%, of taxes paid voluntarily and on time, which is in line with recent levels. After enforcement efforts are taken into account, the estimated share of taxes eventually paid is 85.8%.   Which means that the federal government still isn’t getting almost 15% of which are due each and every year.


(For compliance source material purposes: )

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