Up to $304B lost to tax fraud, no IRS antifraud strategy

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(The Center Square) – The federal government loses as much as $304 billion a year to tax fraud, and the IRS has no agency-wide strategy for stopping it, congressional auditors said in a report Friday.

The Government Accountability Office estimated annual losses at $116 billion to $304 billion, the first comprehensive federal estimate of tax fraud losses. Auditors used a Monte Carlo simulation drawing on IRS data from 2018 through 2024, potential fraud inside the tax gap and tax evasion in the shadow economy.

Applied to tax year 2022, the most recent year for which the IRS has published a projection, GAO put the range at roughly 2% to 6% of the $4.6 trillion in total true tax liability, or 17% to 43% of the $696 billion gross tax gap.

The lost revenue could fund critical government operations and services, such as national security operations and health care for veterans, GAO said. The Center Square calculated that at the low end of GAO's range, the loss runs about $318 million a day. At the high end, roughly $833 million.

GAO made two recommendations: that the IRS develop and document an antifraud strategy, either agency-wide or within its operating divisions with oversight by a designated antifraud entity, and that it designate such an entity to coordinate and oversee fraud risk management.

The agency has neither, auditors found. They found ownership of antifraud work has been left to individual divisions, and that those divisions do not have strategies of their own.

The report cites the case of Carl Delano Torjagbo, a Marietta, Georgia, man who filed two 2021 tax returns using different Social Security numbers and dates of birth, claiming losses from a purported gold mining business in Ghana. The IRS issued him a refund of more than $3.3 million. Combined with the proceeds of a fraudulent pandemic loan, he spent the money on a $333,000 Lamborghini, a down payment on a 72-foot yacht and plastic surgery, according to the Justice Department. He was sentenced in January 2026 to 14 years and seven months in prison.

"An antifraud strategy, either at the agency-wide or division level, would help IRS coordinate and communicate its overall approach to tax fraud risk management to ultimately mitigate such risks and reduce revenue lost to fraud," GAO wrote. The report was signed by Rebecca Shea, director of forensic audits and investigative service, and Jared B. Smith, director of applied research and methods.

The IRS partially agreed with both recommendations. In a Sept. 10 letter, the agency said it would continue documenting its antifraud work through existing programs and would "consider developing an agency wide antifraud strategy." On the second recommendation, it said the Chief Tax Compliance Officer is already the responsible entity for coordinating division tax fraud initiatives, risk assessments, communications and fraud awareness efforts.

GAO reported that IRS officials had told auditors during the review that the agency did not have a designated antifraud entity because tax fraud risk mitigation was the responsibility of individual divisions.

Auditors called identifying an office "a positive step" but said the IRS still has to ensure that office carries out and documents the full set of responsibilities, which include designing and overseeing fraud risk management, serving as the repository of knowledge on fraud risks and controls and managing the fraud risk assessment process.

GAO addressed both recommendations to the commissioner of internal revenue. The response was signed by Frank J. Bisignano, the IRS chief executive officer.

Bisignano disputed how GAO framed the problem. He wrote that the report "does not sufficiently distinguish fraud with broader taxpayer noncompliance" and that instances such as underreported income or inaccurate reporting "do not necessarily meet the legal threshold for fraud."

Bisignano also wrote that characterizing the agency's fraud governance as fragmented "does not reflect the agency's tax compliance approach," saying responsibility is appropriately distributed because fraud risks vary by function and evolve over time.

GAO rejected both points. Auditors wrote that their estimate excludes losses from noncompliance that is not fraud, that the report uses a definition of fraud consistent with the IRS's own, and that the distinction is reflected in the data collected and the modeling conducted. On the second, GAO said its review was not limited to criminal fraud or a single office, and that it collected data on criminal fraud, civil fraud and identity theft from multiple divisions.

The report credits the IRS with blocking billions in fraudulent refunds. Its Return Review Program, an automated system that screens individual returns for signs of identity theft and other refund fraud, blocked about $88 billion in invalid and potentially fraudulent refunds from 2018 through 2024, according to the agency.

Auditors across the IRS closed more than 4.8 million audits over the same period, recommending an annual average of $24.9 billion in additional tax and protecting an average of $3.7 billion a year in revenue from improper refund payments. Those audit figures cover all types of noncompliance, not just fraud.

GAO said managers developing an antifraud strategy should weigh the cost of new controls against the fraud losses they would prevent.

IRS spokesperson John Fuld referred The Center Square to the agency's written response in the report and to Bisignano's letter. He did not answer questions about whether the IRS will develop an antifraud strategy or when the Chief Tax Compliance Officer assumed antifraud coordination duties.

GAO said it performed the work at the initiative of the comptroller general. It addressed the report to the Senate Homeland Security and Governmental Affairs Committee and the House Oversight and Government Reform Committee, including the Oversight subcommittee on government operations. Neither congressional tax-writing committee, Senate Finance or House Ways and Means, was an addressee.

GAO drew the low end of its range from a combined simulation of IRS case data and potential fraud in the tax gap, and the high end from a separate estimate of tax evasion in the shadow economy. Each figure represents the outer bound of the middle 90% of values in its respective distribution.