The Internal Revenue Service (IRS) reported tax evasion cost the US economy a staggering $688 billion in 2021. This figure represents the largest shortfall ever recorded, marking an increase of over $138 billion from estimates for tax years 2017 to 2019.
The IRS has expressed its commitment to taking ‘urgent’ steps to increase compliance among taxpayers and reduce this gap.
The agency is particularly focusing on high-income earners who have been evading their tax obligations. This move is seen as a necessary step towards ensuring fairness in the tax system and protecting those who dutifully pay their taxes.
CFO @JimmyPatronis announces proposal with @SenRickScott to "fight back" against IRS' usage of AIhttps://t.co/PeyHisNned
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To combat this issue, the IRS has received part of the $80 billion from the Biden administration’s Inflation Reduction Act.
These funds are being used to target high earners who have been skirting their tax obligations, with the aim of closing the so-called ‘tax gap’. IRS Commissioner Danny Werfel emphasized the importance of these increased IRS compliance efforts in key areas.
The IRS also announced it will not ramp up audits on households earning less than $400,000 a year. Despite the alarming figures, IRS data shows the vast majority of Americans pay their taxes voluntarily and on time.
The overall compliance rate is projected to stay relatively steady at 86.3 percent for the 2021 tax year, after audits and other enforcement actions.
Tax cheats cost the US economy $688 billion in 2021 – the largest shortfall EVER – as IRS pledges to use AI to target ultra-wealthy cutting corners on levies
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However, hundreds of billions of dollars in unpaid taxes still accumulate each year. This is due to non-filing, underreporting, and underpayments. The projected tax gap does not take into account late payments or IRS enforcement action.
In a bid to tackle tax violations among the country’s wealthiest, the IRS turned to artificial intelligence. Last month, the agency announced it leveraged AI to open investigations into 75 of the largest business partnerships in the US, each averaging more than $10 billion in assets.
While the IRS is taking significant steps to address this issue, the figures highlight that new funding will mean more effective compliance efforts to collect taxes from the public.
