Americans failed to pay record $688 billion in taxes in 2021, IRS says. Look for more audits.

The $688 billion estimate reflects the first time the IRS is providing information about the so-called tax gap on an annual basis, with the agency noting in a Thursday statement that it plans to continue providing the data on a yearly basis. The number reflects an increase of more than $138 billion from estimates for tax years 2017 to 2019, the agency said.

The IRS is ratcheting up audits on wealthy taxpayers, part of its directive after receiving billions in new funding through the Inflation Reduction Act (IRA). The agency has said it wants to go after higher earners who skirt their tax obligations in order to help close the tax gap and raise more money for federal coffers, which will be used for programs like the IRA’s $370 billion in green energy investments.

“This increase in the tax gap underscores the importance of increased IRS compliance efforts on key areas,” IRS Commissioner Danny Werfel said.

“These steps are urgent in many ways, including adding more fairness to the tax system, protecting those who pay their taxes and working to combat the tax gap,” he added.

The IRS has said it won’t increase audits on households earning less than $400,000 annually.

What is a tax gap?

The tax gap is the difference between the estimated taxes that are owed and what is actually paid on time, the IRS said.

It includes three key shortfalls: Taxes that aren’t filed, taxes that are underreported and taxes that are underpaid.

About 85% of taxes are paid voluntarily and on time, the IRS noted.

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