October 15, 2024
Overview of the Tax Gap Projections
The IRS has released its projections for the 2022 tax gap, indicating a gross tax gap of $696 billion. This figure represents the difference between the ‘true’ tax liability and the amount of tax that is actually paid on time.
Key Components of the Tax Gap
- Non-filing: $63 billion (9% of the gross tax gap)
- Under-reporting: $539 billion (77% of the gross tax gap)
- Underpayment: $94 billion (14% of the gross tax gap)
Voluntary Compliance Rate
The voluntary compliance rate has remained stable at around 85%. This rate reflects the percentage of taxpayers who file and pay their taxes as required.
Historical Changes
While the compliance rate has shown minor fluctuations, it has generally remained consistent:
- 2014-2016: 87%
- 2021-2022: 85%
Limitations of the Tax Gap Projections
Despite the insights provided by the tax gap projections, there are several limitations:
- Incomplete Data: The projections do not fully account for all types of noncompliance.
- Measurement Errors: Each estimation approach is subject to potential inaccuracies.
- Sampling Errors: Estimates based on samples may lead to inaccuracies.
- Complexity of Tax System: The intricate U.S. tax system complicates accurate estimation.
- Emerging Issues: New issues like digital assets may not be fully reflected.
- Time Lag: IRS compliance efforts may take years to show in the projections.
Conclusion
The IRS’s tax gap projections provide critical insights into the state of tax compliance in the U.S. While the voluntary compliance rate remains steady, the growing tax gap underscores the need for continued efforts to improve compliance and address the complexities of the tax system.
