The Internal Revenue Service (IRS) of the United States released a new set of tax gap estimates on tax years 2011, 2012 and 2013. The results show the nation’s tax compliance rate is substantially unchanged from prior years.
The gross tax gap is the difference between true tax liability for a given period and the amount of tax that is paid on time.
“Voluntary compliance is the bedrock of our tax system, and it’s important it is holding steady. Tax gap estimates help policy makers and the IRS in identifying where noncompliance is most prevalent. The results also underscore that both solid taxpayer service and effective enforcement are needed for the best possible tax administration” said IRS Commissioner Chuck Rettig.
The average gross tax gap was estimated at $441 billion per year based on data from tax years 2011, 2012 and 2013. 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. The new estimate is essentially unchanged from a revised Tax Year 2008-2010 estimate of 83.8%. After enforcement efforts are taken into account, the estimated share of taxes eventually paid is 85.8% for both periods. And it is line with the Tax Year 2001 estimate of 83.7% and the Tax Year 2006 estimate of 82.3%.
“Maintaining the highest possible voluntary compliance rate also helps ensure that taxpayers believe our system is fair. The vast majority of taxpayers strive to pay what they owe on time. Those who do not pay their fair share ultimately shift the tax burden to those people who properly meet their tax obligations. The IRS will continue to direct our resources to help educate taxpayers about the tax requirements under the law while also focusing on pursuing those who skirt their responsibilities” Rettig continued.
The IRS currently collects more than $3 trillion annually in taxes, penalties, interest and user fees. The voluntary compliance rate of the U.S. tax system is vitally important for our nation. A one-percentage-point increase in voluntary compliance would bring in about $30 billion in additional tax receipts.
Tax Gap studies through the years have consistently demonstrated that third-party reporting significantly raises voluntary compliance. And compliance rises even higher when income payments are also subject to withholding. The IRS also has an array of other programs aimed at supporting accurate tax filing and helping address the tax gap. These range from working with businesses and partner groups to a variety of education and outreach efforts.
The tax gap estimates are a helpful guide to the historical scale of tax compliance and to the persisting sources of low compliance.
Download the IRS report and relevant publications:
Federal Tax Compliance Research: Tax Gap Estimates for Tax Years 2011-2013
Further reading
Tax Gap: EU Countries Lost €137 Billion in VAT Revenues in 2017 (12 September 2019)
UK Tax Gap Estimates for 2017-18 (3 September 2019)
ATO Estimates $11 Billion Small Business Income Tax Gap (30 August 2019)
Mind the (Tax) Gap—It’s Bigger Than You Probably Think!, by Richard Highfield (5 February 2019)
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