IRS chief estimates $1 trillion in federal taxes go uncollected each year

(Image credit: Toni L. Sandys-Pool/Getty Images)

published 14 April 2021

IRS Commissioner Charles Rettig told the Senate Finance Committee on Tuesday that the gap between federal taxes owed and paid "could approach and possibly exceed $1 trillion per year," more than double the official estimate of $441 billion. IRS research shows that $175 billion of those underpayments come from the wealthiest Americans, Rettig said, and other factors include the rise in untaxed cryptocurrencies, income from foreign sources, and illegal income.

Senate Finance Committee Chairman Ron Wyden (D-Ore.) called the $1 trillion tax gap "a jaw-dropping figure" and asked Rettig how the IRS could fix that. Rettig suggested better reporting of income from third parties, more electronic tax return filing, more regulation of tax return preparers, and a larger enforcement budget. After years of budget cuts, the IRS is "outgunned" by tax cheats and dodgers, he said, endorsing a proposal to take agency funding out of the discretionary stream subject to congressional whimsy and politics. President Biden has proposed raising the IRS budget by 10.4 percent, mostly to boost enforcement.

Rettig also said that while it will be a challenge and require extra hiring, the IRS expects to be ready to start making monthly payments of $250 to $300 per child by July 1, as set out in Biden's $1.9 trillion COVID-19 relief law. The IRS is "not historically" a benefits agency, he said, but it "will be working hard to deliver this program quickly and efficiently." The IRS was also responsible for sending out three rounds of COVID-19 stimulus checks over the past year.