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'These Steps Are Urgent': IRS Takes Action in Wake of Record-Breaking $688 Billion Tax Gap The IRS disclosed a historic tax gap for the 2021 tax year, marking the largest-ever recorded shortfall in tax payments.

By Madeline Garfinkle Edited by Jessica Thomas

Key Takeaways

  • A shortfall happens when Americans fail to pay taxes owed on their returns.
  • The IRS plans to overcome the shortfall through improved taxpayer services, new technology tools and additional compliance work.

Opinions expressed by Entrepreneur contributors are their own.

The Internal Revenue Service (IRS) announced Thursday that Americans failed to pay an estimated $688 billion in taxes owed on their 2021 returns, marking the most significant tax shortfall ever recorded, The Wall Street Journal added. The tax gap has increased by more than $192 billion from previous estimates for 2014 to 2016 and $138 billion from estimates for 2017 to 2019.

Approximately $542 billion of the $688 billion total is attributed to underreported income, while the remaining portion of the tax gap is connected to individuals who failed to file their returns on time or as required ($77 billion) or filed on time but neglected to pay their tax bills in full or on time ($68 billion).

The gap doesn't include late payments and IRS enforcement efforts, which the agency says are expected to generate an additional $63 billion for the 2021 tax year, resulting in a projected net tax gap of $625 billion.

Related: Last Call for Tax Procrastinators: Don't Miss This Upcoming Tax Deadline or Expect to Pay These Penalties

To address the significant deficit, the IRS intends to intensify its audit and enforcement efforts. It will also prepare for an influx of income reporting from gig workers due to new rules governing payment apps such as Venmo and PayPal in the tax year 2023, the agency said in the release on Thursday.

"This increase in the tax gap underscores the importance of increased IRS compliance efforts on key areas," IRS commissioner Danny Werfel said in a statement. "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."

Madeline Garfinkle

News Writer

Madeline Garfinkle is a News Writer at She is a graduate from Syracuse University, and received an MFA from Columbia University. 

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