In April 13 testimony to the Senate Finance Committee, IRS Commissioner Charles Rettig testified that he believes that the annual tax gap, i.e., the difference between taxes owed the federal government and taxes paid, may total $1 trillion. He also said that IRS will begin sending monthly child tax credit checks beginning on July 1, as required by the American Rescue Plan Act of 2021 (ARPA or ARP Act).
Tax gap.
The Commissioner estimated the tax gap to be $1 trillion annually. He said that IRS’s official estimate will be announced next year.
He noted that this amount was more than double the $441 million amount that IRS believed to be the gap from 2011-2013. He pointed to the following as the principal causes of the gap: the use of cryptocurrencies, income from illegal activities, foreign source income, underreporting by passthrough businesses, the loss of 17,000 enforcement agents, and unscrupulous tax practitioners.
He also spoke about how to reduce the gap. He noted President Biden’s announcement of a $1.2 billion budget increase for fiscal 2022. (See President Biden proposes $1.2 billion increase in IRS funding for fiscal year 2022 for further information on the President’s announcement.) A $1 billion appropriation solely for IRS enforcement would allow the agency to hire 4,875 new frontline enforcement personnel and their counterparts in the Taxpayer Advocate Service, the Independent Office of Appeals, and the Office of Chief Counsel, Rettig said. Some of that $1 billion appropriation would be used to improve systems to detect tax fraud and evasion.
He also suggested that Congress take action with respect to the following:
- Strengthening income information reporting requirements, particularly regarding cybercurrencies.
- Strengthening IRS’s ability to regulate paid return preparers.
Monthly payment of child credit.
ARPA (Sec. 9611(b)(1), PL 117-2, 3/11/2021) adds Code Sec. 7527A, which requires IRS to establish a program for the advance payment of the 2021 child tax credit. Under the program, the IRS must make periodic (monthly) advance payments (generally by direct deposit)—from July through December 2021–that equal, in total, 50% of IRS’s estimate of the eligible taxpayer’s 2021 child tax credits.
Commissioner Rettig said that he fully expects IRS to launch this program in July. He also noted that IRS will set up an online portal to help parents inform IRS of any changes in their income.
He also warned that there may be initial difficulties with the payments or the portal, as they require many new IRS procedures.
To continue your research on the 2021 child tax credit, see FTC 2d/FIN ¶ A-4050.1.
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