GAO estimates annual federal tax fraud losses at $116-$304 billion

The Government Accountability Office released a report estimating that federal tax fraud costs the government between $116 billion and $304 billion each year. The estimate draws on Internal Revenue Service case data from 2018 through 2024 and incorporates additional information on the tax gap and hidden economic activity.

GAO says the range represents roughly 2 percent to 6 percent of the estimated tax liability for tax year 2022, the most recent year for which a tax-liability figure is available. The agency used a well-established probabilistic method that simulates outcomes under high uncertainty, integrating IRS data and academic literature to produce the range.

IRS safeguards cited in the report include the Return Review Program, which screens individual returns for fraud indicators. According to the IRS, the program prevented $88 billion in invalid or potentially fraudulent refund payments between 2018 and 2024. Tax return audits, civil penalties, criminal investigations and referrals for prosecution also form part of the agency's fraud-risk management toolkit.

GAO notes that while the IRS conducts routine fraud-risk assessments consistent with leading practices, it has not developed a formal antifraud strategy nor designated a dedicated antifraud entity to coordinate efforts across the agency. The report recommends establishing such a strategy and entity to improve coordination and potentially reduce the billions lost each year.

The GAO estimate is intended to help Congress and agency officials gauge the scale of tax fraud and to inform decisions about allocating resources, evaluating the costs and benefits of new controls, and strengthening overall fraud-risk management.