Tax cheats cost the US economy $688 billion in 2021 – the largest shortfall EVER – as IRS pledges to use AI to target ultra-wealthy cutting corners on levies

Americans failed to pay $688 billion in taxes on their 2021 returns, according to a new estimate from the Internal Revenue Service (IRS).

This is the largest shortfall ever – more than $138 billion more than estimates for tax years 2017 through 2019.

The agency said it was taking “urgent” steps to increase compliance and reduce the gap, including stepping up audits of wealthy taxpayers.

Part of the $80 billion the IRS received from the Biden administration’s Inflation Reduction Act is being used to go after high earners who violate their tax obligations — to help close the so-called “tax gap.”

“This increase in the tax gap underscores the importance of increased IRS compliance efforts in key areas,” IRS Commissioner Danny Werfel said in a statement.

Americans failed to pay $688 billion in taxes on their 2021 returns, according to a new estimate from the IRS

“We are adding focus and resources to areas of compliance concern, including high-income and high-wealth individuals, partnerships and corporations,” he added.

‘These steps are urgent in many ways, including adding more fairness to the tax system, protecting those who pay their taxes and working to tackle the tax gap.’

The agency previously said it would not step up audits on households earning less than $400,000 a year.

IRS data shows that the vast majority of Americans pay their taxes voluntarily and on time.

The overall compliance rate is expected to remain relatively steady at 86.3 percent for the 2021 tax year, after audits and other enforcement actions.

But hundreds of billions of dollars in unpaid taxes continue to pile up each year – consisting of failed payments through non-filing, under-reporting and under-payments.

The projected tax gap does not take into account late payments or IRS enforcement action.

The announcement marks the first time the agency has provided annual information on the tax gap — something it plans to do every year going forward.

“We are adding focus and resources to areas of compliance concern, including high-income and high-wealth individuals, partnerships and corporations,” IRS Commissioner Danny Werfel said.

It comes after the IRS announced it is using artificial intelligence to crack down on tax evasion among the nation’s wealthiest.

The agency said last month it had used AI to conduct investigations into 75 of the largest business partnerships in the US that each average more than $10 billion in assets — including hedge funds, real estate investment partnerships and law firms.

It also said it is prioritizing cases involving taxpayers with income above $1 million – but tax debt of more than $250,000.

The IRS said about 1,600 Americans fall under this category and “owe hundreds of millions of dollars.”

Werfel said years of underfunding “have resulted in the lowest rich file audit rate in our history.”

“I am committed to reversing this trend and making sure that new funding will mean more effective compliance efforts on the wealthy,” he added.