NBER Paper – “This paper studies tax evasion at the top of the U.S. income distribution using IRS micro-data from (i) random audits, (ii) targeted enforcement activities, and (iii) operational audits. Drawing on this unique combination of data, we demonstrate empirically that random audits underestimate tax evasion at the top of the income distribution. Specifically, random audits do not capture most tax evasion through offshore accounts and pass-through businesses, both of which are quantitatively important at the top.We provide a theoretical explanation for this phenomenon, and we construct new estimates of thesize and distribution of tax noncompliance in the United States. In our model, individuals can adopta technology that would better conceal evasion at some fixed cost. Risk preferences and relatively high audit rates at the top drive the adoption of such sophisticated evasion technologies by high-income individuals. Consequently, random audits, which do not detect most sophisticated evasion, under estimate top tax evasion. After correcting for this bias, we find that unreported income as a fraction of true income rises from 7% in the bottom 50% to more than 20% in the top 1%, of which 6 percentage points correspond to undetected sophisticated evasion. Accounting for tax evasion increases the top 1% fiscalincome share significantly.”

See also Judd at Popular Information: “The IRS “lost more than 33,378 full-time positions” between 2010 and 2020. Many of these were auditors tasked with catching tax cheats. As of 2019, there were 8,526 auditors working at the IRS. The last time the agency had fewer than 10,000 people working in that role was 1953 “when the economy was a seventh of its current size.” As a result, the IRS conducted “675,000 fewer audits in 2017 than it did in 2010, a drop in the audit rate of 42 percent.” For the top 1%, audit rates “have fallen from about 8 percent in 2011 to 1.6 percent in 2019.”,,,