IRS Tax Gap Data Previews the Future of 10-series Reporting Requirements

David Dobbins
November 7, 2019

A recent fact sheet released by the IRS shows the latest tax gap estimates and overall taxpayer compliance and demonstrates why the IRS is likely to strengthen its tax reporting enforcement policies.

The findings are based on data from tax years 2011, 2012 and 2013. The purpose of this document is to let the public know what the state of compliance is and how effective current tax compliance strategies are at closing the tax gap.

What is the tax gap?

The tax gap is calculated by the voluntary compliance rate (amount of tax paid voluntarily and on time) divided by the total true tax (total amount of tax that should be paid). It is then expressed as a percentage. The difference between the voluntary compliance rate and the total true tax is the tax gap.

This provides a rough gauge of the level of overall noncompliance given all the events that occurred during the relevant tax periods and the Internal Revenue Code (IRC) provisions in effect at the time.

The IRS uses tax gap data to develop future tax enforcement policies. Generally, the larger the gap, the tougher the enforcement.

Summary of the IRS fact sheet

  • The total true tax (total amount of tax that should be paid) is estimated at $2.68 trillion per year
  • The IRS collects approximately $2.24 trillion per year (83.58% voluntary compliance rate)
  • This creates a gross tax gap of approximately $441 billion (16.45% of total true tax)
  • After enforcement and late payments are taken into account, the IRS collects another $60 billion 
  • This leaves a net tax gap of $381 billion
  • The net compliance rate is 85.8%.
  • The gross average tax gap was estimated at $441 billion per year
    • Breakdown by error:
      • Non-filing tax gap was estimated at $39 billion 
      • Underreporting tax gap was $352 billion
      • Underpayment tax gap was $50 billion
    • Breakdown by tax type:
      • Individual income tax gap was estimated at $314 billion
      • Corporate income tax gap was $42 billion
      • Employment tax gap was $81 billion
      • Estate and excise tax combined gap was $3 billion

There is still a lot of money out there

With hundreds of billions of dollars still up for grabs, and with underreporting making up such a large chunk of the tax gap, it’s unlikely the IRS will decrease the complexity of its current 10-series reporting requirements anytime soon. In all likelihood, complexity and penalties for non-compliance will only increase in the coming years as the IRS seeks to narrow the gap.

Take Action

Find out how Sovos ensures compliance in multiple aspects of 10-series reporting. 

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

David Dobbins

Content Marketing Manager
Share This Post

LATAM VAT & Fiscal Reporting
May 20, 2020
Sovos Acquires Taxweb, Extends Tax Determination Capabilities in World’s Most Challenging Compliance Landscape

Earlier this month Sovos announced its second acquisition of 2020, completing our solution for Brazil with an unparalleled offering that solves tax compliance in the place where it is most challenging to do so.  Too many companies doing business in Brazil have been burdened by managing multiple point solutions for continuous transaction controls (CTCs), tax […]

ShipCompliant
July 13, 2020
How Importers Can Ship DtC

The beverage alcohol industry has many complicated rules and regulations that vary by state. Even though importers are similar to other members of the “supplier” tier (like wineries and breweries), they are often treated differently in federal and state regulations. This is particularly true when it comes to direct-to-consumer (DtC) wine shipping.  Currently, 46 states […]

ShipCompliant United States
July 9, 2020
3 Sessions, Many Takeaways: Wine Summit Piccolo Event Recap

Sovos ShipCompliant hosted the 15th annual Wine Summit a couple weeks ago, only this time it was a shortened “Piccolo” virtual version. This half-day event featured some of the most popular sessions and presentations originally scheduled for the cancelled live event back in May. The recorded version of the event is available to watch on-demand; […]

EMEA Tax Compliance VAT & Fiscal Reporting
July 9, 2020
Tax IDs and List Checks: The New Trend

VAT gaps can generally be found in countries that collect indirect taxes. This hiatus has led many tax administrations to implement Continuous Transaction Controls (CTCs), through which transactional and accounting data are monitored in real-time or near real-time. However, even countries with sophisticated CTCs may encounter fraud involving missing traders and non-existent supplies. This creates […]

Tax Information Reporting United States
July 8, 2020
The Industry Leader in Tax and Regulatory Reporting

Last year, Sovos promised insurers we would Solve Tax for Good®. A year later, we have helped thousands of insurers ease the burden and risk of modern tax and regulatory compliance. We have kept our promise by helping insurers stay ahead of the Tax Cuts and Jobs Act, SECURE Act and all other tax and […]

EMEA IPT
July 8, 2020
The Changing Landscape for European Captives and the Challenges Ahead

Over recent years, the number of insurance captives domiciled in Europe has stagnated, if not fallen.  Against this backdrop, the challenges faced by captives across the region are rising and in particular, following the COVID-19 pandemic. A specialized market in restricted jurisdictions Europe is the third largest insurance captive domicile in the world having around […]