It is estimated that $458 billion in taxes go unpaid annually. This is mostly from incorrect reports, not claiming correct income amounts and not properly assessing assets. The astonishing number of unpaid taxes causes the IRS to spend $52 billion annually on audits and tax recovery efforts.
Billions in Unpaid Taxes Annually
As mentioned above, $458 billion go unpaid in income taxes in the U.S. annually. After recovery efforts have taken place, the annual tax gap is reduced to $406 billion. The voluntary compliance rate of paying taxes in the U.S. is roughly 82 percent.
Underreporting Causes Gross Tax Gap
The three main reasons for the gross tax gap are underreporting, failing to file, and underpayment. Underreporting accounts for $387 billion of the existing gross tax gap. Much of this gap is caused by mistakes rather than clear deceptions.
Misreporting of Third-Party Income Amounts
Small businesses earning rental income or royalties are the biggest culprits of misreporting income. Third-party companies tend to misreport payroll. This accounts for just 1 percent of misreported income. Improper withholdings have left taxpayers owing more than necessary due to mistakes.
Closing Thoughts
Tax fraud and neglecting to file tax returns, even if you are due a refund, has consequences. The IRS can take you to court, it can seize your property, and it can freeze your bank accounts. Regardless of your tax situation, it is always better to file an honest return. Hire a tax preparation specialist to ensure that you and/or your business are following the proper IRS tax filing procedures and that no discrepancies are present.
Image credit: Brad Hagan