Wealthy Americans shield 20% of their income from the IRS, new study suggests

The richest 1% of Americans dodge significantly more in income taxes than the Internal Revenue Service previously estimated, according to a new study released this week.

The paper estimates that the top 1% of households fail to report about 21% of their income, with 6 percentage points of that due to "sophisticated evasion" strategies that federal audits don't detect, including offshore accounts and private businesses. Collecting all unpaid federal income tax from the wealthy would boost federal revenues by about $175 billion annually.

"We stress that our estimates are likely to be conservative with regard to the overall amount of evasion at the top," the authors wrote.

By comparison, the bottom 50% of American taxpayers only fail to report about 7% of their income, according to the analysis, published by the National Bureau of Economic Research.

While many forms of income are automatically reported to the IRS and easily unearthed in an audit, profits that stem from partnerships, S-corporations, pass-through businesses or other entities controlled by the taxpayer are often overlooked by the agency.

IRS Commissioner Chuck Rettig told lawmakers in January that audit rates have steadily declined over the last year, falling to the lowest level in at least four decades amid dwindling funding and enforcement staff.

The agency audited just 0.45% of personal income tax returns in 2019, down from 1.1% in 2010.

The paper's authors suggested the IRS should mobilize "additional tools" to "effectively combat high-income tax evasion," including using whistleblowers and other specialized enforcement programs.

"Our results suggest that investing in improved tools and increasing resources to support tax administration at the top of the distribution could generate substantial tax revenue," they wrote.

The study was conducted by IRS researchers John Guyton and Patrick Langetieg, and three professors: Daniel Reck of the London School of Economics, Max Risch of Carnegie Mellon University and Gabriel Zucman of the University of California at Berkeley, who has advocated for a national wealth tax.

Read more at FOXBusiness.com.