“GAO estimated that annual federal tax fraud loss is between $116 billion and $304 billion based on data and information from 2018 through 2024.”
TAX FRAUD: The Federal Government Loses an Estimated $116 Billion to $304 Billion Annuallyfiles.gao.govGAO says nobody had ever put out a comprehensive estimate of federal revenue lost to fraud, as opposed to the tax gap, which mixes fraud with honest mistakes. So this is a first: $116 billion to $304 billion a year, built from 2018 to 2024 data. A short thread on what that range is made of, because I can already see the top number travelling on its own.
“Note: The middle 90 percent of values for the combined estimate is $116 billion (5th percentile) and $253 billion (95th percentile). The middle 90 percent of values for the shadow economy estimate is $122 billion (5th percentile) and $304 billion (95th percentile).”
TAX FRAUD: The Federal Government Loses an Estimated $116 Billion to $304 Billion Annually· files.gao.govThe budget-nerd footnote. The two ends of the headline range come from two different models. The combined estimate runs $116 billion to $253 billion. The $304 billion ceiling is the shadow economy model alone. Both are middle-90-percent ranges, not point estimates.
“IRS estimates that about 15 percent of tax owed to the federal government was not paid voluntarily and on time (the gross tax gap) for tax year 2022.[32] Our estimated range of tax fraud loss reflects approximately 17 percent to 43 percent of the gross tax gap, if applied to tax year 2022.[33]”
TAX FRAUD: The Federal Government Loses an Estimated $116 Billion to $304 Billion Annually· files.gao.govFor scale. IRS says about 15 percent of what was owed for 2022 wasn’t paid voluntarily and on time. GAO thinks fraud is somewhere between a sixth and a bit over two fifths of that gap. The rest is errors, people who can’t pay, and so on. GAO also says the two numbers come from different methods, so read it as rough proportion.
“However, IRS does not have an agency-wide antifraud strategy to address its identified fraud risks in a strategic and coordinated manner. According to officials with the Office of the Chief Risk and Control Officer, IRS does not have an antifraud strategy, and ownership of all antifraud programs and mitigations remains with each division. However, IRS’s divisions also do not have antifraud strategies at the operating level.”
TAX FRAUD: The Federal Government Loses an Estimated $116 Billion to $304 Billion Annually· files.gao.govThe finding that will get less attention than the dollar figure, and probably matters more.
“In addition, in its written comments, IRS raised concerns that the report does not sufficiently distinguish fraud from broader taxpayer noncompliance. IRS also stated that the report characterizes a broader range of noncompliance cases as fraud. However, this is not the case.”
TAX FRAUD: The Federal Government Loses an Estimated $116 Billion to $304 Billion Annually· files.gao.govIRS’s side, in fairness. It partially agreed with both recommendations and says the report blurs fraud with ordinary noncompliance. GAO answers that its estimate already excludes nonfraud noncompliance like math errors and inability to pay. I can’t referee the model from the outside, but the disagreement is about definitions, not about whether fraud is real.
“Such information can also provide benchmarks for assessing the return on investment in counterfraud activities.”
TAX FRAUD: The Federal Government Loses an Estimated $116 Billion to $304 Billion Annually· files.gao.govWhy a budget person cares, whatever you think about IRS funding. Without an estimate like this you can’t say whether another dollar spent on enforcement pays for itself. Now there’s a range to argue over, with the method written down.