Photo: G. Edward Johnson, CC BY 4.0 (https://creativecommons.org/licenses/by/4.0), via Wikimedia Commons (source)
Tax fraud drains an estimated $116 billion to $304 billion from the federal government each year, the Government Accountability Office said in a report released Friday, Sept. 25.
GAO said the range is its best estimate given the available evidence and methods, and it draws on IRS data covering 2018 to 2024. Measured against tax year 2022, the latest year for which total tax liability has been estimated, the range equals roughly 2% to 6% of the taxes owed to the federal government, according to the report.
The watchdog defines tax fraud as individuals or companies knowingly skipping or shrinking payments they owe. It also counts criminals who use stolen identities to claim refunds. The estimate combines Internal Revenue Service fraud cases, suspected fraud within the tax gap and tax evasion tied to the shadow economy, which GAO describes as economic activity deliberately hidden from the government.
GAO said its methodology accounts for the uncertainty involved in estimating fraud and for limits in the data. The agency said the figure could help Congress and officials weigh the costs and benefits of new fraud controls.
What the IRS does now
Several IRS divisions work to manage fraud risk, according to GAO. The IRS told GAO that its Return Review Program, which screens certain individual returns for signs of fraud, blocked $88 billion in invalid and possibly fraudulent refunds between 2018 and 2024. Audits also play a role: the IRS trains auditors to spot fraud indicators, and suspected cases can lead to civil penalties, criminal investigations or referrals for prosecution.
GAO found that the IRS has routinely assessed fraud risks in line with leading practices. But the IRS still lacks a documented antifraud strategy and has not named one office to lead that work agencywide, the report said. GAO said both steps would let the IRS address fraud "in a strategic and coordinated manner."
What's next
GAO made two recommendations: that the IRS develop and document an antifraud strategy, and that it designate an antifraud entity. The IRS partially agreed with both, according to the report. GAO said it will update the recommendations' status once it confirms what actions the agency has taken.
The report does not estimate how much of the lost revenue could be recovered. GAO said "it is not possible to eliminate fraud completely."
Sources
- U.S. Government Accountability Office: Tax Fraud: The Federal Government Loses an Estimated $116 Billion to $304 Billion Annually (GAO-26-107810) (2026-09-25)
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Added to the Motion Media archive on Sep. 28, 2026.
