Tax traps cost the US much more than previously thought, and cryptocurrencies are part of the problem, says IRS commissioner

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The Internal Revenue Service could be losing an estimated $ 1 trillion each year from taxpayers who are not paying their bill in full, Charles Rettig, commissioner of the tax collection agency, said Tuesday. “It would not be unreasonable to believe that the actual tax gap could approach and possibly exceed a trillion dollars,” Rettig told members of the Senate Finance Committee.

“They surpass us. There is no other way to say it, ”he added later. The $ 1 trillion figure was “shocking,” said Senator Ben Cardin, a Democrat from Maryland. The figure is huge in itself, but Rettig’s own estimate during Tuesday’s hearing on the federal tax gap, which is the difference between taxes legally owed and taxes actually paid, was a drastic upward revision of the projections themselves. from the IRS. Rettig said the agency’s existing estimates of the tax gap read as if they were “from the dark ages.” The most recent official estimates from the Internal Revenue Service (IRS) say that every year since 2011 and 2013, taxpayers did not pay $ 441 billion in taxes. IRS compliance efforts and late payments reduced that annual split to $ 381 billion. Much has changed since then, Rettig explained, starting with the rise of the cryptocurrency. The IRS owns virtual currency as Bitcoin BTCUSD, + 4.40% and Ether ETHUSD, + 6.08%. When an owner benefits from the coin, the IRS says they are subject to capital gains rules, but the IRS must know about the transactions before it can assess the taxes. In recent years, the IRS has stepped up enforcement of cryptocurrency tax compliance, most recently by obtaining a court order to obtain account information for users on a digital exchange. Foreign income, such as overseas accounts, and income from illegal sources also contribute to the tax gap, Rettig said. Less than a month ago, IRS researchers were among the authors of a new study that looked at tax evasion and singled out the wealthiest taxpayers. Underreporting of taxpayers in the lower half of the income scale increased 7% when the researchers reexamined the returns using stricter methods. It jumped 21% for the top 1%. The researchers viewed offshore accounts and transfer entities as wealth masking tactics. “We are faced with more sophisticated elements of the community, professionals and others, and the tools they are using,” Rettig said Tuesday. The IRS is also facing a reduction in staff and budget, which means the agency is conducting fewer and fewer complex audits to recover cash. In the past 10 years, the IRS has dropped 17,000 members in its enforcement wing alone, Rettig said. “That has to have an effect, and it does,” he told lawmakers. That’s where the federal budget comes in. President Joe Biden is pushing for massive spending on infrastructure, which would be fueled by corporate tax increases. His administration recently published a budget proposal that would reserve $ 13.2 billion for the IRS. If enacted, that would be a 10.4% increase from this year’s level, according to the Center for Fiscal Policy. The goal of the IRS budget increase is to tighten oversight of wealthy taxpayers and corporations, the White House said last week. The money is intended to “increase oversight of high-income and corporate tax returns, ensuring that the wealthy and well-connected pay what they owe and follow the same rules as everyone else.” If approved, the agency’s budget increase would be approximately $ 1 billion. With that cash, Rettig said Tuesday it could do things like hire 4,875 more employees on the agency’s law enforcement side. It’s not that IRS staff are resigned to tax traps, Rettig said Tuesday. “Our people are equally offended by people who do not comply.”