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Treasury Inspector General for Tax Administration

Press Release


September 16, 2013
TIGTA - 2013-31
Contact: David Barnes
(202) 622-3062
David.barnes@tigta.treas.gov
TIGTACommunications@tigta.treas.gov

TIGTA Finds that the Tax Gap Estimate Needs to Be Improved

WASHINGTON – The Internal Revenue Service (IRS) estimate of the Tax Gap, the difference between taxes owed and taxes paid voluntarily and on time, could be more comprehensive, accurate, reliable, and timely.

That is a finding of a new report released publicly today by the Treasury Inspector General for Tax Administration (TIGTA).

The Tax Gap estimate is a widely used measure in tax policy and administration. Effective tax administration depends on comprehensive, reliable, accurate, and timely information to identify noncompliance and develop strategies to improve voluntary compliance. The IRS’s most recent Tax Gap estimate was $450 billion for Tax Year 2006.

“Measuring the Tax Gap is both complex and challenging,” said J. Russell George, Treasury Inspector General for Tax Administration. “However, I am concerned about the overall accuracy of the estimate.”

TIGTA found that the individual Tax Gap estimate could be more comprehensive if it included estimates for the informal economy and offshore tax evasion. These areas present significant challenges to tax administration and the absence of an estimate could hinder or delay possible solutions. In addition, the estimates for the underreporting of corporate taxes are based on operational examinations and may not be representative of all corporate taxpayers.

TIGTA recommended that the IRS study the feasibility of developing separate estimates for the informal economy and offshore tax evasion. In addition, TIGTA recommended that the IRS consider changing the approach to measuring the corporate Tax Gap estimates.

The IRS substantially agreed with TIGTA’s recommendations to study the feasibility of developing separate estimates for the informal economy and offshore tax evasion. The IRS also agreed to study the merits of changing the approaches to estimating corporate tax underreporting.

Read the report.

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Note: The difference between the date TIGTA issues an audit report to the Internal Revenue Service and the date TIGTA publicly releases the report is due to TIGTA's internal review process to ensure that public release is in compliance with Federal confidentiality laws.

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