A new analysis by IRS researchers and academics published Monday morning estimates that the richest 1% of U.S. households don't report around 21% of their income, often using complex tax avoidance strategies that allow them to outmaneuver the federal government's increasingly rare audits of the wealthy.
Led by two IRS researchers as well as Daniel Reck of the London School of Economics and Emmanuel Saez of the University of California, Berkeley, the new paper (pdf) finds the richest households' unreported income "correspond to undetected sophisticated evasion" such as offshoring, pass-through businesses, and other avoidance tactics.
The authors write. "We estimate that 36% of federal income taxes unpaid are owed by the top 1% and that collecting all unpaid federal income tax from this group would increase federal revenues by about $175 billion annually."
When the IRS actually conducts random audits they "do not capture most tax evasion through offshore accounts and pass-through businesses, both of which are quantitatively important at the top," according to the new analysis. As a result, the paper's authors note, the incomes of the wealthiest people in the U.S. and the country's overall inequality are significantly underestimated.
Reck told the Wall Street Journal ahead of the paper's official release that the findings show "there is more revenue than you might have thought at the very top."