Los Angeles Times

Tax cheats may be costing U.S. $1 trillion a year

IRS chief says loss from evasion may be much higher than previously thought.

- Bloomberg

The head of the IRS calculated that tax evasion in the U.S. may total $1 trillion a year, a figure that is 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 the agency’s radar at the time.

New estimates include the use of cryptocurr­ency, he said. Offshore tax evasion, illegal income that goes undetected by the IRS and underrepor­ting from passthroug­h businesses also contribute to a larger than previously known tax gap, Rettig said.

“I think it would not be outlandish to believe that the actual tax gap could approach and possibly exceed $1 trillion per year,” Rettig told the Senate Finance Committee.

The ballooning difference between the tax dollars owed and what is actually collected by the IRS is an increasing point of focus on Capitol Hill, where a rising number of lawmakers are coming to see more aggressive tax enforcemen­t as a way to boost government revenue.

Enforcemen­t focus

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

He also plans to outline individual-tax proposals in the coming weeks. Biden’s budget proposal last week also called for an additional $900 million for expanded audits.

Rettig said that an extra $1 billion for enforcemen­t could enable the IRS to hire 4,875 front-line audit personnel and update computer systems to help identify fraud and tax evasion. The commission­er said rebuilding the agency’s auditing capability would be a multiyear process, after the IRS lost 17,000 enforcemen­t-related employees in the last decade.

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

Strengthen­ing tax-reporting requiremen­ts and the regulation­s overseeing tax-return preparers would help the IRS stop fraud and close the tax gap, Rettig said.

About 99% of taxes are paid to the IRS when there is automatic withholdin­g and reporting to the agency, but only 45% of what’s owed gets paid when those are lacking, he said.

Wealthy evaders

Most individual­s earn their income through wages, through which taxes are automatica­lly deducted from each paycheck. However, income from passthroug­h entities, such as partnershi­ps and limited liability corporatio­ns, isn’t subject to automatic withholdin­g, giving the owners more opportunit­y to skirt tax obligation­s.

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.

Those individual­s are able to use pass-through businesses and offshore structures to shield their income from the IRS’ view, the study said.

Collecting that money would boost tax collection­s by $175 billion a year, the study found.

 ?? J. David Ake Associated Press ?? THE NEW IRS estimates include the use of cryptocurr­ency. Above, its headquarte­rs in Washington.
J. David Ake Associated Press THE NEW IRS estimates include the use of cryptocurr­ency. Above, its headquarte­rs in Washington.

Newspapers in English

Newspapers from USA