Tim’s Tax News on the Tenth – January 2021

THE TAX GAP IS A SIGNIFICANT COMPONENT OF THE FEDERAL DEBT

So what is the Tax Gap? The gross tax gap is the difference between the true tax liability for a given tax year and the amount that is paid on time. It is comprised of the non-filing gap, the underreporting gap, and the underpayment (or remittance) gap. The net tax gap is the portion of the gross tax gap that will never be recovered through enforcement or other late payments.

The IRS periodically estimates the tax gap to gauge historical overall compliance of all types of taxpayers with their federal tax obligations. The IRS studies, over the decades, have shown the tax gap consistently shows the United States enjoys a relatively high and stable voluntary tax compliance rate. 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 do not 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.

The latest IRS 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 recent IRS tax gap estimates translate to about 83.6%, of taxes paid voluntarily and on time, which is in line with recent levels. The recent estimate is essentially unchanged from a revised Tax Year 2008-2010 study that estimated voluntary compliance at 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 in line with the TY 2001 estimate of 83.7% and the TY 2006 estimate of 82.3%.

If you would like more details, please do not hesitate to call our office. Our office has been successful in helping taxpayers with IRS and IDOR collection problems for over 29 years. If you have a tax or debt problem, please contact me at 847-705-9698 or thughes@lavellelaw.com and find out how we can help you.

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