The Internal Revenue Service (IRS) has released tax gap estimates for tax years 2011-2013. According to those estimates, the nation's tax compliance rate has changed little from prior years. The majority of taxes owed are paid and paid on time. When they are late, unpaid, or there is an underpayment, the IRS may come after the taxpayer for the balance and may seek additional interest and penalties.
Taxpayer Compliance Rates
The average tax compliance rate for tax years 2011, 2012, and 2013 was about 83.6 % of taxes paid voluntarily and on time. The gross gap of taxes averaged $441 billion per year. After IRS enforcement actions, the IRS collected another approximately $60 billion, leaving a net tax gap of about $381 billion per year.
These compliance rates fall in line with prior years, averaging 83.8% compliance for tax years 2008-2010, 82.3% for 2006, and 83.7% for 2001.
According to IRS Commissioner Chuck Rettig, “The IRS will continue to direct our resources to help educate taxpayers about the tax requirements under the law while also focusing on pursuing those who skirt their responsibilities.”
Individual, Corporate, Employment, and Estate Tax Compliance
Averaging 2011-2013 annually, individual income taxpayers nonfiling amounted to $31 billion, underreporting was $245 billion, and underpayment was about $38 billion. The amount of corporate income tax underreporting and underpayment totaled about $42 billion. Nonfiling, underreporting, and underpayment of employment tax totaled about $81 billion, and $3 billion for estate taxes.
After enforcement actions, the IRS collected an average of $60 billion of taxes of the estimated total tax liability. Enforcement and late payment efforts were most effective on unpaid estate taxes, which collected 55% of the unpaid taxes. Only about 6% of the unpaid employment taxes were collected, and 24% of the unpaid corporate taxes. Enforcement on individual income tax amounted to about $43 billion, but only 14% of the total unpaid tax liability.
IRS Compliance Actions
There are a number of actions the IRS can take to go after unpaid or underpaid taxes. Most of those actions begin with sending a letter to the taxpayer letting them know the reason for the notice, what actions need to be taken, who to contact, and what will happen if no action is taken. These notices or letters include things like:
- CP90 Notice - Intent to seize your assets and notice of your right to a hearing
- CP523 Notice - Intent to terminate your installment agreement and seize your assets
- Letter 1153 - Trust Fund Recovery Penalty assessment
The threat of seizing assets is often enough to get most taxpayers to take action through challenging the assessment, paying the taxes, or contacting the IRS. However, many taxpayers may be unable to make a tax payment in full and may have to make payment arrangements with the IRS. This can include:
Got a Notice From the IRS?
If you received a notice from the IRS or you are worried about tax enforcement, talk to your Maryland tax attorney for help. Contact Gabaie & Associates, LLC for a free consultation on your state or federal tax issue at (410) 862-2198.