IRS tax gap reached record $688B in 2021

The gap between taxes owed and paid (tax gap) jumped to $688 billion for tax year 2021, according to a new report by the Internal Revenue Service released yesterday.

The agency blames underreported income and noncompliance as the main reason for the largest shortfall ever.

Out of the unpaid taxes, $542 billion is due to not filing returns on time or at all and $182 billion because of undeclared business and farm income.

The IRS noted there is less compliance to file taxes among gig economy workers, despite wage increases over the years.

The news comes as the IRS is stepping up its audit efforts. It is primarily focusing on high-income taxpayers.

The estimate doesn’t include taxes evaded through crypto and offshore bank accounts.