Head of IRS: Tax cheats cost U.S. $1T a year

The head of the IRS calculated tax evasion in the U.S. may total $1 trillion a year, a figure multiples higher than previous estimates from the federal government.

Internal Revenue Service Commissioner Chuck Rettig told a Senate panel Tuesday that previous tallies of the tax gap — which came to a cumulative amount of about $441 billion for the three years through 2013 — didn’t include some tax evasion-techniques that weren’t on their radar at the time.

New estimates include the use of cryptocurrency, he said.

Enforcement focus

President Joe Biden has proposed to strengthen corporate-tax enforcement as part of his proposal to pay for his $2.25 trillion, infrastructure-led spending plan.

Rettig said that an extra $1 billion for enforcement could give the IRS the scope to hire 4,875 front-line audit personnel, and update computer systems to help identify fraud and tax evasion.

“We want to get there, but we do need your help,” Rettig said.

Wealthy evaders

Most individuals earn their income through wages, where taxes are automatically deducted from each paycheck. However, income from pass-through entities, such as partnerships and limited liability corporations isn’t subject to automatic withholding.

A study released last month, which included two IRS officials as authors, found that the richest 1% of Americans don’t report about 20% of their income to the IRS. Collecting that money would boost tax collections by $175 billion a year, the study found.