Tax Evasion Statistics: Just How Damaging Is it to Not Pay Your Taxes?

The taxation system relies on taxpayers being compliant and honest in reporting their annual income. Self-reporting is one of the central features of the U.S. tax-collection procedure. As such, the effects of tax crimes are higher than just the revenue withheld from the government.

Examinations by the Internal Revenue Service are rare and actual convictions are even rarer. However, the gap between the taxes owed and the taxes collected by the federal government is around $450 billion.

IRS investigations usually bring in around $50 billion a year in delinquent taxpayer money, which includes monetary civil penalties. The average prison penalty for tax fraud in the United States is around 3-5 years.

Key Tax Evasion Statistics - Editor's Choice

• The IRS assessed $73.6 billion in civil penalties in 2022.
• The median amount of evaded tax in FY 2022 was $339,071.
• 6% of Americans feel that it's okay to cheat as much as possible on their income taxes.
• The abated civil penalties in 2022 amounted to $50.9 billion.
• Multinational corporations now avoid more than $249 billion in taxes each year.

Ballpark estimates suggest tax fraud now costs the U.S. $1 trillion per year.

(The New York Times)

This is called the “tax gap” – the difference between taxes due and taxes collected. The number excludes the reduction of taxes by avoidance, such as offshore booking of profits, and has seen a sharp increase since 2019 and the rise of of cryptocurrencies, according to the IRS.

In 2023, the net tax collected in the U.S. was $4.44 trillion.

(FiscalData)

The net amount is calculated by deducting tax refunds from the gross total. More than 49% of the net amount was collected from individual and estate and trust income taxes, a total of $2.18 trillion. The next biggest chunk of money was collected from Social Security and Medicare taxes: $1.61 trillion, or 36% of the net total.

In 2022, The IRS assessed $73.6 billion in civil penalties.

(Internal Revenue Service)

The largest percentage of civil penalties during the last fiscal year was assessed in individual and estate and trust income tax returns, totaling $50.3 billion. 

Multinational corporations manage to avoid paying up to $240 billion in taxes annually.

(ABC News)

Tax avoidance via offshore subsidiaries is the common name for de facto corporate tax evasion. Statistics show that 362 of the Fortune 500 companies have subsidiaries in international tax havens, such as Bermuda or the Cayman Islands.

55 Fortune 500 companies that have offshore subsidiaries would owe an additional $147.5 billion in taxes if all of their profits were booked in the U.S.

(Citizens for Tax Justice)

These are the 55 corporations that actually disclose what they would expect to pay in taxes if all of their profits were booked in the United States. For this reason, many financial experts believe offshore tax havens are simply a loophole that encourages corporate tax evasion.

For example, Apple would have to pay about $36.4 billion in taxes for the $111.3 billion it has booked offshore. Being based and managed in the U.S. and incorporated in Ireland allows Apple to avoid paying taxes to any country for the biggest part of its assets. It does this by being a tax resident of neither country.

Microsoft owes $29.8 billion in taxes in 2023.

(Fortune)

The recent IRS fine is based on an audit from 2004 to 2013, and is an indicator of the increased crackdown on corporations using tax havens for U.S. profits. In 2020, Fortune reported that Microsoft moved $39 billion to Puerto Rico and other tax havens in order to avoid U.S. taxes. 

There were a total of 2,552 criminal IRS investigations in the 2022 fiscal year.

(Internal Revenue Service)

A total of 1,837 cases were referred for prosecution last year, with 557 cases for legal source tax crimes, 785 cases for illegal source financial crimes and 495 cases for narcotics-related tax crimes.

There were 1,491 sentenced cases of tax fraud in the U.S. during the 2022 fiscal year.

(Internal Revenue Service)

This number seems to be increasing, as there were 'only' 667 confirmed tax offenders ten years before. Sentencing for tax evasion has had a guideline minimum of around 3 to 5 years. However, the average tax evasion jail time sentence was between 15 and 18 months, thanks to government-sponsored departures.

The median amount of evaded tax in 2022 was $339,071.

(S.H. Block)

This number has grown significantly since 2013, when the median tax loss for convicted tax fraudsters was around $160,000.

Tax fraud offenders are predominantly male. In 2022, 73% of them were men.

(United States Sentencing Commission)

The demographic profile of tax offenders is as follows: 48.1% are white, 29.1% are African American, and 14.0% are Hispanic. On average, they’re 52 years old, and the vast majority of offenders are United States citizens (92.8%).

Tax fraud offenses were 22.4% lower in 2022 compared to 2018.

(United States Sentencing Commission)

While the numbers are down heavily from 2018, it must be noted that the percentage has been rising since the five-year low in 2020. 

Mississippi has the highest property tax delinquency rate of 15.6%.

(CoreLogic)

The report from CoreLogic found that in 2021, the delinquency rates dropped by 0.4%, to 5.9% total. The state with the lowest property tax delinquency rate was North Dakota, with just 1.8%.

There is a wide consensus among Americans (93% of whom completely or mostly agree) that paying taxes is their duty as citizens, according to the IRS.

(Internal Revenue Service)

While keeping in mind that this was an IRS survey carried out online and over the phone, it’s safe to say that almost all Americans feel taxes are essential for their country to function properly. Only 3% of respondents to the IRS survey dared to categorically disagree with the statement that it’s their civic duty to pay taxes.

About 10% of American citizens say it’s okay to cheat on income taxes “a little here and there.”

(Internal Revenue Service)

Again, the vast majority of respondents (84%) said it’s not acceptable at all to commit tax crimes. “As much as possible” was the answer to the question “What is an acceptable amount to cheat on income tax” for 6% of the population, a sharp increase from 3% in 2021.

Only 0.49% of individual tax returns filed are now examined by the IRS.

(Internal Revenue Service)

The number of examinations has dropped from 1.5 million in FY 2013 to 708,309 in FY 2022. Last year, 21.4% of tax return examinations were done in the field, while 78.6% of audits were done through correspondence. 

IRS audits in FY 2022 resulted in a total of $30.2 billion recommended additional taxes that need to be paid.

(Internal Revenue Service)

Investigations cross fiscal years; this number represents the additional taxes that were requested by examining returns filed for the 2022 calendar year. Some 2.1% of taxpayers investigated in these closed tax return audits did not agree with the assesement, which resulted in $12.5 billion in unagreed recommended additional taxes. 

In FY 2022, the IRS accepted 13,165 offers for compromise to decrease the liable tax owed by delinquents.

(Internal Revenue Service)

A taxpayer can propose a compromise to the IRS in special circumstances when he or she does not have the means to pay the tax owed. If the IRS finds that the tax liability cannot be paid either in a single payment or via a payment program, it may accept the settlement offer.

Out of 36,022 offers, 13,165 were accepted, resulting in a total of $234.3 million in reduced tax payments.

The IRS abated $50.9 billion in civil penalties in 2022.

(Internal Revenue Service)

Civil penalties occur even if you make an unintentional mistake while filling out your annual tax return. An abatement is the reduction of a penalty due to an error by the IRS or similar circumstances, such as bankruptcy abatement. The number civil penalties assessed and abated has risen sharply compared to 2021, when a total of $33.5 billion was abated during the fiscal year.