The Tax Gap’s Many Shades of Gray (Report)

The “tax gap”—the difference between the amount of taxes owed and the amount of tax actually paid—includes substantial gray areas where the law is ambiguous and the IRS’s determination of taxes owed is debatable. Understanding the tax gap’s shades of gray can inform discussions of tax law and policy. Our analysis highlights the importance of both reforming substantive tax law and increasing IRS enforcement as complementary strategies to improve tax compliance.