The tax gap—the difference between what is owed and paid to the government—widened to $688 billion in tax year 2021, which the IRS claims “underscores the importance” of the need for increased compliance.
For tax year 2020, the IRS estimates the gap to be $601 billion. For 2021, it is estimated to be $688 billion, which is “a significant jump” from previous estimates, according to an Oct. 12 news release. The 2021 tax gap is $192 billion more than estimates from 2014-16 and $138 billion more than 2017-19.
This is the first time the IRS is making tax gas projections on an annual basis. Previously, the number was published once every three years. Moving forward, the IRS plans to publish the data yearly.
As the 2020 and 2021 tax gap numbers are estimates, they can be revised up or down at a later time.
“This increase in the tax gap underscores the importance of increased IRS compliance efforts on key areas,” said IRS Commissioner Danny Werfel. “With the help of Inflation Reduction Act funding, we are adding focus and resources to areas of compliance concern, including high-income and high-wealth individuals, partnerships, and corporations.”