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IRS Sounds Alarm on Escalating Tax Gap: Urgent Push for Compliance and Enforcement

IRS Says Tax Gap Requires Urgent Efforts to Close Gap: The Internal Revenue Service (IRS) released alarming estimates on Thursday, shedding light on the persistent issue of tax evasion that continues to plague the federal tax collection agency. The projections for 2021 and 2020 have raised significant concern, indicating a substantial increase compared to previous tax years. Specifically, the gross “tax gap” for 2021 stands at a staggering $688 billion, while 2020 reflects a similarly concerning figure of $601 billion. These figures are notably higher than the tax gaps observed in the years 2017-2019 and 2014-2016.

IRS Commissioner Danny Werfel emphasized the gravity of the escalating tax gap estimates, underscoring the need for intensified compliance efforts. Consequently, the Biden administration has taken a proactive step by allocating $80 billion to bolster enforcement and enhance compliance initiatives. This substantial investment is aimed at fortifying compliance across various sectors, particularly focusing on high-income and high-wealth individuals, partnerships, and corporations.

IRS Says Tax Gap Requires Urgent Efforts to Close Gap: “We are adding focus and resources to areas of compliance concern, including high-income and high-wealth individuals, partnerships and corporations,” noted Werfel in a statement. “These steps are urgent in many ways, including adding more fairness to the tax system, protecting those who pay their taxes and working to combat the tax gap.”

The projections for 2021 are primarily based on past noncompliant behavior, without accounting for the unprecedented shifts brought about by the ongoing pandemic. However, the IRS is actively taking steps to adapt and capture more sophisticated methods to measure behavioral changes during these challenging times.

In a significant departure from previous practices, Thursday’s announcement marked the first time the IRS provided single tax year projections. The estimated net tax gap for 2021 is expected to reach a staggering $625 billion. This unveils the daunting challenge the IRS faces in its endeavor to collect all taxes owed. While a majority of American taxpayers conscientiously fulfill their tax obligations on time, a substantial chunk of hundreds of billions of dollars remains unpaid. The widening gap continues to pose a significant challenge.

The IRS is diligently working to ramp up compliance efforts and tackle this persistent tax gap issue. As the agency prioritizes fairness within the tax system, its ongoing commitment is aimed at safeguarding the interests of diligent taxpayers and aggressively combatting tax evasion. The allocated resources and intensified efforts reflect a vital step towards addressing this ever-growing concern and fortifying the nation’s tax collection mechanisms.

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