Tax cheats cost the U.S. more than previously thought — and Bitcoin is part of the problem, IRS commissioner says

The Internal Revenue Service could fail to collect about $ 1 trillion each year from taxpayers who do not pay their full amount, Charles Rettig, the tax commissioner’s agent, said Tuesday.

“It would not be uncommon to think that the real tax gap could approach and potentially exceed $ 1 trillion,” Rettig told members of the Senate Finance Committee.

“We’re being shot out. There is no other way to express it, ”he added later.

The $ 1 trillion figure was “shocking,” said Senator Ben Cardin, a Maryland Democrat.

“We’re being shot out. There is no other way to express it. ‘

– Charles Rettig, Internal Revenue Service commissioner

The number is massive in itself, but Rettig’s own assessment during Tuesday’s hearing on the federal tax loophole – which is the difference between legally owed taxes and taxes actually paid – was a drastic upward revision of the IRS’s own projections.

Rettig said the agency’s existing tax gap estimates are “from the dark ages”. According to the latest official IRS estimates, taxpayers paid no taxpayers’ money of $ 441 billion each year from 2011 to 2013. IRS compliance efforts and late payments have narrowed that annual gap to $ 381 billion.

A lot has changed since then, Rettig explained, starting with the surge in cryptocurrency.

The IRS counts virtual currencies like Bitcoin BTCUSD (+ 0.15%) and Ether ETHUSD (-0.43%) as property. If an owner benefits from the currency, the IRS says it’s subject to capital gains rules – but the IRS needs to know about the transactions before they can rate taxes.

In recent years, the IRS has stepped up enforcement of cryptocurrency tax compliance, most recently by obtaining a court order for account information for users at a digital switch.

Foreign income like offshore accounts and income from illicit sources also add to the tax gap, Rettig said.

Less than a month ago, IRS researchers were some of the authors of a new study looking at tax evasion that pointed a finger at the richest taxpayers.

Underreporting for taxpayers in the lower half of the income ladder rose 7% when researchers checked returns using more rigorous methods. It jumped 21% for the top 1% of earners. The researchers looked at offshore accounts and pass-through units as tactics for masking wealth.

“We are dealing with more demanding elements in the community, practitioners and others and the tools they use,” Rettig said on Tuesday.

“The IRS is grappling with shrinking headcount and budget declines, which means the agency is conducting less complex audits to recoup cash.”

The IRS is also facing a decline in staff and budgets, which means the agency is doing less complex reviews to recover cash. In the past 10 years, the IRS has lost 17,000 members in its enforcement wing alone, Rettig said. “It has to have an impact, and it does,” he told lawmakers.

This is where the federal budget comes into play. President Joe Biden is pushing for massive infrastructure spending fueled by corporate tax hikes.

His administration recently released a budget proposal earmarking $ 13.2 billion for the IRS. According to the Tax Policy Center, this would be an increase of 10.4% over this year’s level.

The point of the IRS budget increase is to strengthen oversight over wealthy taxpayers and corporations, the White House said last week. The money is intended to “improve control over high-income and corporate tax returns, and ensure that the rich and connected pay what they owe and play by the same rules as everyone else.”

If this goes through, the agency’s budget increase would be around $ 1 billion.

With this money, Rettig said on Tuesday that he could, for example, hire 4,875 more employees on the agency’s enforcement side.

It’s not that IRS employees have resigned themselves to tax fraud, Rettig said on Tuesday. “Our people are equally offended by people who don’t do it.”

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