GAO: Tax Fraud Likely Costs U.S. $116–$304 Billion a Year; IRS Lacks Agencywide Antifraud Strategy

The U.S. Government Accountability Office said Friday that federal tax fraud likely costs the government between $116 billion and $304 billion a year, and found that the Internal Revenue Service still lacks an agencywide antifraud strategy and a designated office to coordinate that work.

“We estimated that the federal government could lose between $116 billion and $304 billion annually to tax fraud.” the congressional watchdog said in highlights released Sept. 25. In the same report, GAO said the IRS “has not developed an antifraud strategy or designated an antifraud entity” to oversee fraud risk across the agency.

The findings matter because they offer Congress and IRS officials a clearer measure of the scale of tax fraud, a narrower category than broader tax noncompliance, and could help guide decisions about fraud-risk management, resources and internal controls. The IRS collected more than $5 trillion in fiscal 2025, about 84% of all federal revenue, underscoring the size of the system the agency is trying to protect.

GAO said its estimate is based on data and information from 2018 through 2024, including IRS case data on fraud and potential fraud, information on possible fraud within the tax gap, and estimates of tax evasion tied to the shadow economy. It used a probabilistic simulation to reflect uncertainty and data limitations, and described the range as its best estimate rather than a precise tally.

Applied to tax year 2022, the most recent year for which an estimate of total federal tax liability was available, the GAO range would equal about 2% to 6% of all taxes owed to the federal government that year.

The report said IRS divisions already carry out multiple activities that help prevent or detect fraud even without a centralized strategy. GAO pointed to the agency’s Return Review Program, which screens tax returns for possible identity theft and other suspicious claims. According to the IRS, GAO said, that program prevented $88 billion in invalid and potentially fraudulent tax refund payments from 2018 through 2024.

GAO also said audits help the IRS identify fraud. When the agency finds potential fraud, possible responses include civil penalties, criminal investigation and referral for prosecution.

Even so, GAO concluded that the IRS has not put in place the kind of agencywide framework it recommends for managing fraud risk. The watchdog issued two recommendations: that the IRS develop and document an agencywide antifraud strategy, or direct divisions to do so with agency oversight, and that it designate an antifraud entity responsible for coordinating and overseeing fraud risk management.

“GAO is making two recommendations to IRS, that it develop and document an antifraud strategy and designate an antifraud entity.” the watchdog said in its highlights. GAO said the IRS partially agreed with both recommendations, and both remain open.

The new estimate is not the same thing as the overall tax gap, which measures the difference between taxes owed and taxes paid on time. In October 2024, the IRS projected that the gross tax gap for tax year 2022 was $696 billion, with a net tax gap of $606 billion after expected enforcement and late payments.

GAO’s report is narrower. It attempts to estimate the share of losses tied specifically to intentional tax fraud, rather than errors or other forms of noncompliance. That distinction is central to the report: the new figures are meant to quantify suspected fraud within the tax system, not to replace the IRS’s broader tax-gap estimates.