Ask The California Employment Tax And Payroll Tax Attorney – The Annual Tax Gap Is Now $688 Billion!

By Robert S. Schriebman

2023

Introduction

Someone once said that a billion dollars does not buy what it used to – but $688 billion! That money could solve a lot of problems in this world. What is a tax gap? The gross tax gap is the difference between estimated true tax liability for a given period and the amount of tax that is paid on time. The gross tax gap covers three key areas – nonfiling of taxes, under reporting of taxes, and underpayment of taxes. Between the tax years 2014 – 2016 and the year 2021, the estimated tax gap increased by about 38%. While most people file timely and pay their taxes, a lot do not.

Recently, the IRS revised the tax gap from a projection of $625 billion, the revision of the gap to $688 billion is astonishing.

The gross tax gap has three components and the IRS recently published how the gap grew from 2016 to 2021. Let’s look at the revised projections:

1. Non-filers: This gap is now $77 billion for the tax year 2021. This is up from $44 billion for the tax years 2017 – 2019.
2. Underreporting: This reflects the tax gap for those who timely file their returns but underreport their taxes. The gap is now $542 billion for the tax year 2021. This is up from $445 billion for the years 2017 – 2019.
3. Underpayment: This reflects those who timely file their returns, but do not fully pay. The gap is now $68 billion for the year 2021. This is up from $64 billion for the years 2017 – 2019.

The tax gap does not reflect offshore, digital assets, and pandemic credits. There is no way to estimate the gap generated by these types of transactions. The IRS is devoting much of its resources, including newly appropriated funds to detect non-filers and non-reporters. The latest IRS report was very vague on the actions being taken by the Treasury to track down these activities and to develop a system of compliance.

For more information see IR-2023-187.

Conclusion

The “tax gap” should be of great concern. When I first started practicing law, the gap was only a couple billion dollars, and no one gave it much thought. It was regarded as akin to inflation – just a fact of life – deal with it. Now the gap is so large that it is almost incomprehensible. It tells me that there are too many people not doing their share. I am dumbfounded and perplexed at the IRS is not more aggressive in dealing with tax cheats. It is true that unplanned events happen in our lives that result in economic setbacks. However, there are those who take pride in avoiding their responsibilities to this nation.

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Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments.  Mr. Schriebman is in private practice.  He is not affiliated in any way with the EDD, and he is not employed by the EDD or any other agency of the State of California.

Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

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