Tax evaders are costing the U.S. over $1 trillion each year using offshore accounts, cryptocurrency

The IRS Chief announced that tax evasion in the U.S. exceeds $1 trillion a year and is going up. Internal Revenue Service Commissioner Chuck Rettig told a Senate panel that previous tallies of the tax gap — which came to a cumulative amount of about $441 Billion for the three years through 2013 — didn’t include some tax evasion-techniques that weren’t on their radar at the time. New estimates include the use of cryptocurrency, he said. Offshore tax evasion, illegal income that goes undetected by the IRS and underreporting from pass-through businesses also contribute to a larger than previously known tax gap, Rettig said.

Strengthening tax-reporting requirements and the regulations overseeing tax-return preparers would help the IRS stop fraud and close the tax gap, Rettig said. About 99% of taxes are paid to the IRS when there is automatic withholding and reporting to the agency, but only 45% of what’s owed gets paid when those are lacking, he said.

Most individuals earn their income through wages, where taxes are automatically deducted from each paycheck. However, income from pass-through entities, such as partnerships and limited liability corporations, isn’t subject to automatic withholding, giving the owners more opportunity to skirt tax obligations.

A study released last month, which included two IRS officials as authors, found that the richest 1% of Americans don’t report about 20% of their income to the government. Those individuals are able to use pass-through businesses and offshore structures to shield their income from the IRS’s view, the study said. Collecting that money would boost tax collections by $175 billion a year, the study found.

JEFFREY NEWMAN REPRESENTS WHISTLEBLOWERS INCLUDING IRS WHISTLEBLOWERS REPORTING MAJOR TAX EVASION. Jnewman@newmanshapiro.com 617-823-3217