The numbers from the IRS for the 2022 filing season came out last week. The Tax Gap, or the amount of taxes that should be collected but remain unpaid or are paid late is now projected to be $696B.
That’s a 41% increase of the projections from the 2014 – 2016 seasons when they began collecting the numbers. Since the economy has also grown by 41% in that time frame, the projections are now keeping pace.
In prior years they were increasing faster than the economy, but have now come down to keep pace. The Service is crediting the increased funding they received from the Inflation Reduction Act of 2022, with the gap narrowing.
It should be noted that the Tax Gap includes the following…
1 – The difference between the true tax that’s owed vs. taxes that are paid timely.
2 – Non-filers or taxes that aren’t filed.
3 – Underreporting, or people who cheat on their returns.
4 – Underpayment, or those who only pay a portion of their taxes timely.
Late payments and other IRS enforcement actions are projected to collect another $90B from the 2022 tax season.
Let me leave you with this…
It should be noted that only 60% of Americans don’t pay income taxes in the first place. The other 40% make up those individuals who don’t earn enough to file, including the elderly, children, unemployed, and the poorest Americans.
Of the 60% who are supposed to pay, the percentage of taxpayers who voluntarily comply with filing and paying their taxes has remained steady at 85%.
One of the biggest changes in the past few years are the prison sentences given out on tax cases. I’ve written about this phenomenon more than once.
In the old days, the only thing they wanted was your money. The concept was the fact that the IRS is a collection agency, and that they can’t collect anything from anyone who is incarcerated.
But that has now changed. In the Service’s ongoing process of collecting as much tax as possible, they now make examples of tax cheats by making sure they do lengthy prison terms.
This is a radical change from the past. No one wants to see you doing three hots and a cot, so get your taxes filed and paid.
And if you don’t already know it, the extension due date for C Corps, Partnership, and Personal Income Tax Returns is tomorrow. Depending on where you live, that may have been extended, based on my column from last week.
We’re all going to get through this. Let’s get through it together.
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Chris Amundson
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