Despite the acclaimed high-tax morale of the Americans, the latest tax evasion statistics show a substantial change in course. The recent budget cuts in the IRS have spurred many to take their chances with their tax filings. Yet, we’re getting ahead of ourselves. What is tax evasion? What is tax fraud? And how does the IRS tell the difference between these two charges?
In this article, we’ll answer this, and more, with our most important stats and facts on this topic, including tax evasion on a much grander scale — aka tax havens.
Top 10 Takeaway Tax Evasion Statistics & Facts
- A whopping $7.8 trillion were held in tax havens around the world back in 2016.
- The high rate of tax sheltering is partly to blame for the COVID-19 crisis in Italy, experts state.
- The British Virgin Islands are the world’s leading tax haven.
- The US accounts for the largest annual corporate tax evasion on the planet.
- 95% of all federal revenue in the US is collected in taxes.
- The annual US “tax gap” consists of approximately $458 billion.
- The rate of IRS audits dropped to 0.51% in 2018.
- Accuracy-related tax fraud resulted in 606,121 penalties in 2018.
- The IRS launched a total of 2,886 criminal investigations in FY 2018.
- The average jail time in the US due to tax evasion is somewhere between 3 and 5 years.
If you want to find out more about the most disliked civic duty among Americans, just keep on reading.
Tax Havens & Global Tax Evasion Statistics
1. A whopping $7.8 trillion were held in tax havens around the world back in 2016.
(EC Europa)
In other words, tax evasion, or tax fraud, represents around 10.4% of the global GDP. What’s more, Europe accounted for approximately 20% of the global offshore wealth with $1.6 trillion over the same period.
2. The British Virgin Islands are the world’s leading tax haven, latest tax evasion statistics reveal.
(Business Insider) (OFC Meter)
It’s no secret that tax dodgers around the globe are relocating their earnings to so-called offshore financial centers (OFCs), located on remote islands with limited jurisdiction and taxes.
Well, according to CORPNET, the British Virgin Islands are the world’s top tax haven, absorbing 5,235 times more in value than a country of its size could possibly hold. Next in line are Taiwan (2,278), and Jersey (one of the Channel Islands) with an estimated 397 times higher economic value.
All of these, along with the Bermuda and Cayman Islands, and Samoa are blacklisted by the EU and labeled as tax havens.
3. If we look at global tax fraud statistics, Guyana and Chad are the two countries affected by tax evasion the most.
(World Economy Forum)
According to reports, tax evasion represents 6.97% of their total GDP, making these two countries the undisputed kings of tax evasion. Likewise, tax evasion in Malta accounted for a whopping 4.59% of the national GDP. Other honorary mentions include Guinea, Zambia, Pakistan, and Argentina accounting for 4.42% of their respective GDPs.
In comparison, in the US, this percentage is as low as 1.13%, and in China, merely 0.75%.
4. The high rate of tax avoidance is partly to blame for the COVID-19 crisis in Italy, experts state.
(EurActiv) (Statista)
Tax evasion costs Italy approximately $207.6 billion per annum, on average, representing the highest level of Value Added Tax evasion in the EU.
Having the second-largest public debt, Italy has been cutting on healthcare spending for years and this is generally believed to be one of the reasons that COVID-19 had such a devastating effect on the country.
5. The US accounts for the largest annual corporate tax loss on the planet.
(Statista)
Is tax evasion serious? Yes, definitely,and in the US in particular. Each corporate tax evader in the US contributed to the annual $188.8 billion in losses, which is the biggest sum reported on a global scale.
In comparison, China has an annual tax evasion loss of “just” $66.8 billion, a far better score than the US.
6. Goldman Sachs is the world leader in the number of subsidiaries created for corporate tax evasion, statistics from 2017 indicate.
(Statista)
The Goldman Sachs Group counts 905 subsidiaries (shell companies) located in tax havens in 2017, making it the fortune 500 company with the largest number of affiliates in tax havens; 511 of them were located on the Cayman Islands, another 183 were in Luxembourg, 52 were in Ireland, and 41 in Mauritius.
Morgan Stanley has the second-largest number (619), followed by Thermo Fisher Scientific (199), and Bank of New Mellon Corp (177).
Tax Evasion in the USA
7. 95% of all federal revenue in the US is collected in taxes.
(IRS)
With around $3.5 trillion collected on an annual level, the IRS is responsible for generating 95% of federal revenue — a responsibility they are not taking lightly.
The IRS also took steps in FY 2018 to begin the implementation of the Tax Cuts and Jobs Act — the December 2017 legislation that reflected the most sweeping set of changes in the US tax system in more than 30 years.
8. The US has one of the highest voluntary compliance rates (VCR) when it comes to paying taxes, tax evasion statistics reveal.
(The Atlantic)
88% of Americans believe that tax evasion is not acceptable, and their voluntary compliance rate (VCR) — describing their willingness to pay their income taxes — ranges from 81% to 84%.
In comparison, the average VCR of Germany — the biggest economy in Europe — was estimated at merely 68%.
The VCR of other countries is even lower. For example, in Italy, there was an estimated 62%, and in Greece, almost half of the households don’t pay any income taxes at all, according to the IMF.
9. The annual “tax gap” consists of approximately $458 billion, US tax evasion statistics confirm.
(CPA Journal)
IRS estimations for the 2008–2010 period in the US show an average $458 billion owed to the federal government in taxes, per annum; a figure that’s also known as the “tax gap.”
Accounting for 58% of this gap are individual taxpayers ($264 billion) who either intentionally or mistakenly underrepresent their taxes.
In total, individual taxes for this period accounted for $319 billion, employment taxes ($91 billion), corporate income taxes ($44 billion), and excise taxes ($4 billion) each year.
10. Corporate tax evasion examples reveal some of the biggest US businesses hid $1.4 trillion in tax havens.
(Statista)
Namely, the biggest US corporations, including General Motors, Bank of America, and Apple were found placing billions of dollars in offshore accounts, despite the fact that most of them received substantial federal taxpayer support, sometimes counting in the billions.
11. $131 billion was the total amount owed to the federal government, tax evasion cases from 2017 show.
(Vox)
Tax evasion in the US is on the rise these past few years. For example, in 2017, 1 in every 30 households (including businesses) didn’t pay any taxes to the federal government whatsoever.
It is estimated that 14 million taxpayers cheated and evaded paying their taxes during this fiscal year alone, adding to a sum of a staggering $131 billion owed in taxes and penalties to the federal government.
As of 2017, about 6.9 million employers didn’t pay payroll taxes to the IRS.
IRS Audits & Penalties
12. IRS audit percentages dropped to 0.51% in 2018.
(Accounting Today) (CNBC)
The American institution responsible for controlling tax payments, the US Internal Revenue Service (IRS), has drastically reduced audit rates in the past decade, from 0.93% in 2010 to 0.51% in 2018.
This is mainly due to the lack of resources for conducting audits during this period. Namely, there was a 28% IRS audit budget cut, plummeting the number of audits, with only 991,168 audits conducted in 2018, which is almost half of the number of tax audits conducted in 2010 (1.735 million).
13. 1 in every 31 taxpayers earning more than 1 million were subject to an IRS audit, tax statistics from 2018 reveal.
(Accounting Today) (Tax Debt Help)
In comparison, in 2011, 1 out of every 8 taxpayers earning over $1 million was audited. Likewise, the chance of going through an IRS tax audit increases with income.
14. $85,400 was the average amount owed in tax evasion cases in 2018.
(Accounting Today)
Even though IRS field audits consisted of just 25% of all audits conducted in 2018, data shows that they were efficient enough, targeting the right taxpayers.
The average tax evader that underwent a field audit in 2018 owed $85,400 in taxes, whereas according to the IRS fraud report, tax dodgers discovered by mail audits owed just $7,000, on average.
In addition, the average amount owed for a CP2000 notice in 2018 was $1,773.
15. An average taxpayer is 3 times more likely to go through CP2000 than an IRS audit, according to the latest IRS investigations.
(Accounting Today)
Even though this automated process is less frequent than in previous years, CP2000 — the automated underreported notice — is still more frequently used to detect inaccuracies between the IRS information on returns and filed returns; any CP2000 discrepancies can lead to a penalty.
16. American taxpayers were sent over 219.7 million non-audit notices via mail, tax statistics from 2019 and 2018 reveal.
(Treasury)
Maintaining discipline in tax-paying with a lower budget led the IRS to issue an enormous number of non-audit mail notices, reaching over 200 million over the past few years.
Nevertheless, the rate of undeliverable mail from 2018 through June 2019 was lower by 1% since 2016, with some 6.6% notices not resulting in an answer.
17. Accuracy-related tax evasion cases in 2018 resulted in 606,121 penalties.
(Accounting Today)
Despite the lower numbers of audits, in 2018, more than half a million Americans were given a penalty due to inaccuracies in their tax return claims.
This is a ten-fold increase from 2005 when merely 58,366 individuals earned penalties.
The CP2000 notices, represented the biggest danger for taxpayers since most of the discrepancies in 2018 were detected this way.
18. The IRS launched a total of 2,886 criminal investigations for tax crimes in FY 2018.
(IRS)
Legal and illegal source financial crimes, as well as narcotics-related financial crimes, were the categories in which almost 3,000 cases were filed and noted in the 2018 IRS report on tax fraud, statistical data confirms.
During the same period, 3,051 cases of said allegations were completed, some of which resulted in imprisonments. 1,197 of these were legal source tax crime cases, 1,086 were illegal source financial crimes, and 768 were financial crimes related to narcotics.
19. The average jail time for tax evasion in the US is somewhere between 3 and 5 years.
(Golding Lawyers) (Leonard Tax Law)
Unlike tax fraud where the reported figures are merely incorrect, tax evasion involves intentionally concealing income, assets, deductions, and therefore is subject to a heavier jail sentence of up to 5 years in prison, and/or a fine of up to $250,000 plus prosecution expenses.
20. 82% of those sentenced for tax related crimes in FY 2018 were incarcerated.
(IRS)
In 2018, the penalty for tax evasion, and other tax-related crimes (like many laundering), was predominantly incarceration. As the average tax evasion jail time is around 3 to 5 years, this is a serious matter.
From the 3,051 completed investigations, 2,130 got referrals for prosecution (nearly 70%), and 1,879 of them were convicted.
In addition, 1,732 taxpayers were incarcerated, and the biggest rate of incarcerations (87.8%) was recorded for tax cheaters in the category of narcotics-related tax fraud.
FAQ
How many taxpayers in the US are there?
(IRS)
Based on IRS data from 2018, there are around 152.9 million taxpayers in the US.
What percentage of income goes to taxes?
(Turbo Tax)
Individual federal income tax takes a substantial chunk of our personal finances. And mainly because it is progressive — meaning, the higher the taxable income, the higher the rates.
In addition, there were 7 different rates for 2019, ranging from 10% to 37%.
Can you go to jail for not paying taxes?
(Golding Lawyers) (Leonard Tax Law)
The short answer is yes. Al Capone is one of the best historical examples. Not paying taxes is considered a tax fraud, which is a maximum of 3 years in prison, and/or a fine of up to $250,000 for individuals, and $500,000 in the case of corporations; including the costs of prosecution.
However, depending on the circumstances under which the taxpayer failed to pay taxes, the IRS may decide to initiate a civil investigation instead of a criminal one.
How common is tax evasion?
(Brookings) (Vox)
Around 1 in 6 dollars owed as a federal tax is not paid. Despite this, a big part of the US population is not required to pay taxes, according to US retirement savings statistics. Nevertheless, millions of those who are supposed to fill in their tax returns are cheating.
In 2017, 1 in every 30 taxpayers did not comply with their tax payment.
How much money does the US lose to tax evasion?
(CPA Journal)
According to the IRS, for the 2008–2010 period, $458 billion per annum was lost, on average, due to tax fraud and tax evasion.
Who goes to jail for tax evasion?
(HR Block)
Usually the IRS files for criminal prosecution in cases where taxpayers are fully aware of the amount of taxes they owe but deliberately try to conceal it.
In the cases where the taxpayers are for some reason unable to pay their taxes — hence the difference between tax avoidance vs evasion charges — the IRS is more compliant and understanding, as per the latest bankruptcy statistics.
How to report a business to the IRS for paying under the table?
(IRS) (USA Today)
When someone wants to report fraud to the IRS or wishes to report tax evasion, they can do it in several different ways:
- By downloading a 3949-A form from the IRS website, printing it, filling it, and mailing it to the IRS office.
- By ordering the form via mail, filling it, and returning it to the IRS.
- By sending a letter to the IRS office containing as much information as possible on the tax offender, along with their personal contact information.
- By calling the tax fraud hotline.
- By filling the form 211 if you want to claim a reward for outing a tax evader.
What happens when you report someone for tax evasion?
(USA Today)
After processing the allegations, the IRS confides the case to an IRS special agent for further investigation.
Whistle-blowers can get 15% to 30% of the amount collected if the involved amount is more than $2 million (in the case of businesses), or if the accused earns more than $200,000 annually.
Bottom Line
As inevitable as taxes may seem, national tendencies toward fraud are accelerating. Nevertheless, the government still has a few perks under its sleeves like the whistleblower program and civic prosecutions with which they can easily detect and punish tax frauds even with smaller budget spending. Unfortunately, tax evasion statistics can attest that this is not always the case for tax evasion on a much larger scale.
