WASHINGTON—The U.S. government is losing some $1 trillion in unpaid taxes every year and needs more and consistent Internal Revenue Service funding to go after tax cheats, IRS Commissioner Charles Rettig said on Tuesday.
Rettig told the Senate Finance Committee that the “tax gap”—the difference between taxes legally owed and revenue collected—has grown substantially since the last official estimate of a $441 billion annual average from 2011 to 2013.
New sources of wealth arising since then, such as trading in cryptocurrencies, were escaping taxation, he said, as was rising foreign-sourced income and abuses of business income passed through as personal income.
“If you add those in, I think it would not be outlandish, that the actual tax gap could approach, and possibly exceed $1 trillion” on an annual basis, Rettig said.
Rettig said the agency is “outgunned” by increasingly sophisticated tax avoidance schemes, while years of budget cuts have left it with about 17,000 fewer revenue enforcement staff than it had a decade ago.
He called for Congress to provide “consistent, timely, adequate and multiyear funding.”
President Joe Biden’s fiscal 2022 budget request would boost the IRS budget by about $1.3 billion, or 10.4 percent over current levels. The proposed $13.2 billion IRS budget would include an additional $900 million for tax enforcement in fiscal 2022, which starts on Oct. 1.
The Treasury has made closing the tax gap a priority, recently hiring Natasha Sarin, a Wharton School economist who is an expert on the topic.
The tax gap represents underreported income, underpayment or nonpayment of taxes owed and exaggeration of claimed tax breaks such as deductions and credits.
One suggestion that Rettig made to senators to capture more unreported income would be legislation requiring that transactions in cryptocurrencies such as Bitcoin be reported, similar to the way that securities transactions are reported on 1099 forms.
These reports would help the IRS to tax capital gains in lightly regulated cryptocurrency investments, which now have a market capitalization of around $2 trillion, Rettig said.
The IRS chief also said that the agency would be ready to open a portal on July 1 for low-income Americans to sign up to receive monthly payments of an expanded Child Tax Credit under Biden’s $1.9 trillion COVID-19 relief package.
The credit, which will provide six months of payments of $3,600 for children under 6 years of age and $3,000 for those 6 to 17, puts the revenue agency into the position of benefits administrator for the first time. Rettig said the new monthly payment system, which is temporary, will cost about $391 million and take 300 to 500 people to administer, including more phone service personnel and fraud investigators.