Tax Gap 2022

The IRS recently announced it estimated the Tax Gap for the 2022 tax year is $696 billion.  The Tax gap is the difference between the total taxes Americans are supposed to pay and the amount of taxes actually paid on time.  According to the IRS, 77% of the tax gap results from taxpayers underreporting their taxes, 14% comes from taxpayers not paying their taxes on time, and 9% comes from taxpayers not filing their returns.  The Tax Gap is of course a major public policy concern as it constitutes billions of dollars of revenue the Federal Government could be put to good use (at least in theory).  However, is every dollar of the $696 billon tax gap a problem?

I am not attempting to excuse or justify the behavior of every one of the thousands or perhaps millions of taxpayers who may be breaking the rules as filing and paying timely tax returns is the law. Preparing truthful and accurate returns is the law.  Tens of millions of Americans spend considerable time, money, and energy complying with tax laws. And it is not fair that many Americans follow the rules (at great expense) while others do not.  However, there are thousands or perhaps millions of people out there who can and should do better at complying with the law. 

Nevertheless, not everybody who finds themselves on the wrong side of the rules gets there through bad intentions.   Some may have run into difficult circumstances like a severe illness or a contentious divorce that forced them to neglect many of their affairs – taxes included.  Many of them are business owners who found themselves in over their heads not only trying to pay their taxes, but also trying to keep up with all the filing and reporting requirements.  These are the people we help every day at our tax law firm.  These people are part of the tax gap and completely closing the tax gap means solving the issues faced by these people as well. 

The recent IRS Announcement at least pays lip service to the idea that tax gap should not be closed by merely ramping up enforcement.  The IRS claims it will “improve taxpayer services” by offering new technology and programs such as the Voluntary Income Tax Assistance (VITA) .  Perhaps better technology and programs like VITA will bring more taxpayers into compliance, but it remains to be seen whether these measures will help the people we see every day. 

This is not to say we are in the business of helping clients “get away” without consequences.   That is simply not how any of this works.  There are consequences for falling into the tax gap and many of our clients will inevitably face at least some of these consequences.  While the law requires individuals who find themselves on the wrong side of the tax laws to face penalties, tax liens, and other punitive measures, the law also requires mercy in many circumstances.  Our job is to help people in trouble get the best and most merciful treatment available.

The Tax Gap problem is costing our nation billions of dollars.  It is a large and complicated problem with no easy solutions.  However, there will always be at least some tax gap even in a perfect tax system.  People will make reasonable and honest mistakes, and the tax system can and should allow people to atone for their mistakes.

At RJS LAW, we have decades of combined experience helping clients stay out of the tax gap.  If you find yourself owing money to the IRS or having any tax problems with any taxing authority, we are here to help.  We see you as a human being who has a tax problem that can be solved  Please contact us on the web at RJS LAW of by telephone at 619-595-1655 for a free consultation.

Written by Joseph Cole, Esq., LL.M.