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U.S. Rep. Gerry Connolly, who represents legions on federal workers living in Northern Virginia, scoffs at conservative efforts to pare the Internal Revenue Service.
Congress has cut about $1.2 billion from the IRS budget during the past five years. The actions impair the nation’s ability to collect revenue needed to reduce deficits, Connolly, D-11th, said during a Sept. 9 interview on Federal News Radio.
"It’s estimated we leave somewhere north of $350 billion a year - that’s billion - a year on the table uncollected, because IRS doesn’t have the resources," he said.
Connolly added that if the IRS had more resources, it could collect so much in unpaid taxes that the government could get rid of the so-called sequestration budget cuts - projected to slice about $1 trillion during the next decade - and have enough left over to make a sizable down payment on the national debt.
We examined Connolly’s claim that the U.S. loses about $350 billion in tax revenue each year because the IRS lacks the means to collect it.
George Burke, the congressman’s spokesman, said Connolly’s statement was based on IRS reports on the country’s "tax gap" - the amount of underreported income, unpaid tax bills and taxes that never were collected because returns weren’t filed.
"On several occasions, IRS officials have testified before the House Oversight and Government Reform Committee on the amount of uncollected taxes and the agency's lack of resources," Burke wrote in an email. "The potential return on investment is mind-boggling."
The $350 billion
The IRS periodically provides an estimate of how much revenue Uncle Sam is owed but doesn’t collect because of tax evasion. Mark Hanson, an IRS spokesman, told us in an email that it takes years for the agency to compile its tax-gap estimate, because it requires complicated research.
The latest figures available are for 2006. The IRS says there were nearly $2.7 trillion in total tax liabilities in 2006. Of that amount, about $450 billion wasn’t paid on time. The main cause of missed payments was taxpayers underreporting their income, the IRS said.
Some late payments eventually trickled in, and the IRS took enforcement actions against some tax scofflaws. Those actions recovered about $65 billion, according to the agency’s tallies, leaving about $385 billion in liabilities the IRS says it was owed but didn’t collect.
So Connolly’s claim that there’s "somewhere north" of $350 billion in taxes left on the table has validity.
Is all that tax collectible?
To complete our fact check, we also need to look at the second part of Connolly’s statement - that the IRS doesn’t collect the $350 billion-plus each year because it lacks "resources."
Two analysts told us that extra resources could help the IRS narrow the gap, but it wouldn’t completely erase tax evasion.
"Some of it is uncollectible, people don’t have the money," said Eric Toder, co-director of the non-partisan Tax Policy Center who has written about the tax gap.
Moreover, Toder said that certain unpaid tax liabilities are just inherently difficult to discover, such as cash transactions by small businesses that can occur without any record. More auditors would capture some unpaid taxes, Toder said, but they would provide only a few stitches in mending the tax gap.
In 2007, Toder authored a paper that said Congress and President George W. Bush’s administration could take added steps to patch the tax gap, such as providing the IRS more resources for enforcement and requiring taxpayers to report more income information. But he said policymakers had to be realistic about the return they would see on such initiatives.
"Although estimates of how much additional resources and better enforcement tools would raise are incomplete and highly uncertain, it is extremely unlikely that they could raise more than $20-30 billion per year," Toder wrote.
In an interview, Toder told us there is a danger the tax gap could grow if the IRS is cut back too much and there becomes a sense that enforcement is lax due to strained resources.
We also spoke to Robert Goulder, tax policy counsel at Tax Analysts, a Falls Church-based non-profit that examines tax regulations. He told us filling the gap would require unrealistic scenarios, such as an IRS agent being assigned to watch the cash register at every "mom and pop" small business. Added enforcement also would run counter to an American culture that chafes at inquiries from the IRS, Goulder said.
Even with an unlimited budget, Goulder said, "they still couldn’t get the tax gap down to zero."
A 2012 Government Accountability Office report, which looked at various strategies to cut down the tax gap, said "closing the entire gap may not be feasible, since it could entail more intrusive recordkeeping or reporting than the public is willing to accept or more resources than the IRS is able to commit." It cited a 1997 GAO report which said "it would be unrealistic to assume that our tax system, or any tax system, can achieve 100-percent compliance and thus eliminate the tax gap."
Connolly said Uncle Sam forgoes $350 billion a year because the Internal Revenue Service lacks the resources to find and collect that amount.
His figure is solid, based on the latest data available from the IRS -- from 2006.
But his contention that the gap is caused by lack of IRS resources is an overstatement. Although analysts say more manpower could help the agency narrow the gap, it wouldn’t come close to filling it. Some unpaid taxes are extremely difficult to sniff out, and some people simply can’t pay, they said.
So on the whole, we rate Connolly’s statement Half True.
Editor's note: A previous version of this story had the wrong figure for the amount of cuts to the IRS budget in the last five years.
Rep. Gerry Connolly’s comments to Federal News Radio, Sept. 8. (Connolly’s statement is made at just over 23 minutes into audio clip).
Federal News Radio, "Rep. Connolly talks pay raises, cybersecurity, federal funding," Sept. 8, 2015.
Email from George Burke, spokesman for Rep. Gerry Connolly, Sept. 23, 2015.
Interview with Eric Toder, co-director of the Tax Policy Center at the Brookings Institution and Urban Institute, Sept. 24, 2015.
Eric Toder paper written for the Tax Policy Center, "Reducing the tax gap: the illusion of pain-free deficit reduction," July 3, 2007.
Eric Toder paper written for Tax Analysts, "Focus on the tax ‘avoidance’ gap," 2009.
Interview with Robert Goulder, tax policy counsel at Tax Analysts, Sept. 29, 2015.
Email from Robert Goulder, Sept. 29, 2015.
Internal Revenue Service, "IRS releases new tax gap estimates: Compliance rates remain statistically unchanged from previous study," Jan. 6, 2012.
IRS, "2010 IRPAC report: Tax gap subgroup," Jan. 13, 2015.
Internal Revenue Service, "The tax gap," accessed Sept. 30, 2015.
Email from Mark Hanson, spokesman for the Internal Revenue Service, Sept. 24, 2015.
Government Accountability Office, "IRS could significantly increase revenues by better targeting enforcement resources," December 2012.
Government Accountablity Office, "Tax Gap: Sources of noncompliance and strategies to reduce it," April 19, 2012.
U.S. Treasury Department Inspector General J. Russell George testimony before the U.S. Senate Committee on Finance, April 14, 2005.
CNN Money, "Tax Gap: IRS comes up $385 billion short," Jan. 6, 2012.
Congressional Research Service, "Tax gap, tax compliance and proposed legislation in the 112th Congress," Sept. 20, 2012.
Nina E. Olson, National Taxpayer Advocate testimony to the Senate Committee on Finance, June 28, 2011.
IRS Commissioner John Koskinen testimony before the House Oversight and Government Reform Committee, Feb. 11, 2015.
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