Crapo calls for clarity on IRS ‘tax gap’ estimates – Dailyfly.com Lewis-Clark Valley Community
United States Senate Finance Committee
Washington DC – US Senator Mike Crapo (R-Idaho), a senior member of the Senate Finance Committee, sent a letter to Commissioner Rettig of the Internal Revenue Service (IRS) to clarify the “tax gap” estimates. At a recent Finance Committee hearing, Commissioner Rettig speculated that the “tax gap”, or the difference between what taxpayers owe and what they actually pay, could be $ 1 trillion. dollars or more. However, the $ 1 trillion estimate is much higher than previous IRS estimates which were in the range of $ 450 billion and were based on tax data going back to 2011-2013. Crapo notes that while efforts to improve IRS monitoring and enforcement of tax evasion are worth considering, discussions about increasing monitoring, auditing, and targeting of certain categories of tax evasion. taxpayers and their enforcement must be balanced against privacy concerns and taxpayer rights.
“While your testimony and writings make it clear that you are speculating on the $ 1 trillion figure, many have viewed it as a factual data point. . . In order for Congress to make informed political choices, it is interesting to learn about the breakdown of your cumulative number of tax gap.
“I look forward to working with you and the Administration is reviewing the effectiveness of any additional resources to raise more revenue from those who are accountable. As you know, there has always been interest in tax gap estimates, as there appear to be significant resources available to improve compliance. Yet realizing these resources from enhanced IRS funding has not always been easy or transparent.
“It would be a missed opportunity if discussions and advocacy turn into political exercises, and it would be detrimental if the IRS’s efforts did not strike the right balance between taxpayer responsibilities and taxpayer rights.”
A copy of the letter is linked here and pasted below.
Dear Commissioner Rettig,
In an April 13 hearing before the Senate Finance Committee, you speculated that the “tax gap” could approach or exceed $ 1 trillion per year. On April 23, you posted a document on the IRS website that explained this speculation. Some of the foundations of your speculation were subsequently published in an April 28 fact sheet on the White House website outlining elements of the president’s “American Family Plan”.
In summary, you argue that: the most recent IRS tax gap study, covering the 2011-2013 tax years, identifies a gross (net) tax gap of 441 ($ 381 billion); a lot has happened in those years, including the evolution of cryptocurrency markets with asset market caps of several trillions of dollars; some recently published research and advocacy studies on undeclared or hidden income abroad and in remittance entities suggest perhaps large and undetected tax gap amounts; and, if you factor in cryptocurrency and studies, “it wouldn’t be surprising if non-compliance for future tax years exceeds $ 1 trillion per year.”
While your testimony and writings make it clear that you are speculating on the $ 1 trillion figure, many have viewed it as a factual data point. For example, on the day of the Senate Finance Committee hearing, the New York Times reported that “tax cheats cost $ 1 trillion a year,” the IRS chief said.
In order for Congress to make informed political choices, it is interesting to learn about the breakdown of your cumulative tax gap number, so please answer the following questions and provide answers before May 24:
- How much of the possible $ 1 trillion tax gap for the current year is attributable to the growth in the dollar value of the estimated 2011-2013 net gap of $ 381 billion resulting from growth in assets and prices since that earlier period;
- How much of the possible $ 1 trillion tax gap is attributable to cryptocurrency holdings, and given the volatility of cryptocurrency valuations, how confident are you that your valuation for the year in? course should apply to future years;
- How much of the possible $ 1 trillion tax gap is attributable to what you say reflects unreported or hidden income offshore and in flow-through entities?
I look forward to working with you and the Administration is reviewing the effectiveness of any additional resources to raise more revenue from those who are accountable. As you know, there has always been interest in tax gap estimates because there appear to be significant resources available to improve compliance. Yet realizing these resources from enhanced IRS funding has not always been easy or transparent.
Moreover, it has long been true that the so-called return on investment (ROI) numbers offered by federal agencies suggest high potential gains for resource investments, but the numbers are by nature speculative and ex post confirmations of returns. actual made investments. are rare. You indicated that “… any return on investment (emphasis in original) shown is probably underestimated as it does not reflect the effect of visible and enhanced enforcement on deterring non-compliance.” It is disturbing to hear that any return on investment offered by an agency is underestimated because estimates with systematic bias are poor estimates. It is potentially worrying to hear that ROI estimates may be underestimated because the estimates do not take into account how visible and improved IRS enforcement might affect taxpayer behavior. This suggests that a larger IRS invasion could be helpful for income generation.
There are also a number of questions related to a study that you and the administration have relied heavily on to seek increased IRS funding and a more focused IRS review of certain Americans. This study involved the use of sensitive private taxpayer data with strict legal protections on confidentiality and was obviously done in part by asking the IRS to make a special deal to make IRS employees of two of the non-researchers. IRS. One of the authors actively leads crusades, with unclear political goals, to “tax the rich”, proposes to track everything people own in a “global wealth register” and has worked on research that l Former Treasury Secretary Lawrence Summers called it “substantially inaccurate.” and substantially misleading. ”
Unfortunately, the study you cite is not at this stage a reliable source from which to assess either the tax gap or the specific activities of “high income and high net worth taxpayers” to whom the IRS directs its activity. review. This same study was not properly approved, and it is premature for the IRS to place such emphasis on its findings. Indeed, a subsequent analysis of this study, including comments on the analysis employed by the authors of the study, published on May 3, 2021, reports that there are: “methodological problems creating an inherent bias in their results. “; incorrect approaches; methodological problems; and other issues. Once resolved, these issues, according to the May 3 commentary, lead to the conclusion that “the inclusion of evasion has much less impact on the highest income shares and the rates of underreporting of higher income. higher incomes are lower ”.
In view of these issues, please answer the following questions by May 24:
In light of the comments by authors Auten and Splinter, please make any corrections you deem necessary to the Guyton, Langetieg, Reck, Risch and Zucman analysis, and identify an updated official IRS estimate of the percentage of l federal income tax unpaid but owed by the highest 1 percent, and the amount of collection of all that would generate for the federal government, compared to the $ 175 billion cited annually on page 3 of your article “A Closer Look: Impacting the Tax Code ”.
Please indicate when you expect to respond to the questions I put to you for the record following your testimony on April 13 at the hearing before the Senate Finance Committee. I have attached a copy of these questions for your convenience.
There are useful bipartisan issues worth considering regarding IRS funding, the application of our tax laws and taxpayer responsibilities, as well as the tax gap. I look forward to working with you and the administration on these matters, always mindful of the importance of protecting the rights and privacy of all taxpayers. It would be a missed opportunity if discussions and advocacy turn into political exercises, and it would be detrimental if the IRS’s efforts did not strike the proper balance between taxpayer responsibilities and taxpayer rights.