It’s interesting what statistics the IRS keeps. Some of those statistics tell us when we are likely to get audited. Other statistics tell the IRS how effective their work is in collecting money to run the government. Other statistics can reveal when scammers are cheating taxpayers and when taxpayers are cheating Uncle Sam. One particular statistic is known as the “tax gap,” and that tells the IRS how well its tax system is running. The IRS has been measuring the tax gap for decades. It helps the IRS and Congress to know how effective our “voluntary tax system” is.
So what does the tax gap show? Generally, it shows that most taxpayers comply with the federal tax laws. In general, the IRS gets about 84% of the tax revenue it’s supposed to get. By knowing the “compliance rate,” the IRS knows where it should apply its resources and increase compliance work.
And what about those other statistics the IRS collects? Well, let’s look at the statistics for deductions. The IRS keeps track of deductions for various income levels. If your deductions are too much for your income level, you might get flagged for an audit. That doesn’t mean you should artificially limit your deductions to avoid an audit, and you should claim the deductions you are rightfully entitled to. But you should be aware that your audit risk might be high if you have big deductions.
The IRS also keeps tabs on all 1099 forms that are issued and all W2G forms that are issued for casino jackpots, and all W2 forms that are issued for salaries. By keeping track of those forms, the IRS not only can tell if you’re paying the correct amount of taxes each year, but if someone else is pretending to be you and is stealing your identity and possibly your tax refunds.