211 OTHER INFORMATION (UNAUDITED)

Corporate Income Tax Liability for Tax Year 2017

Percentage of

Income Subject Total Income Tax Income Tax After

Total Assets to Tax After Credits Credits to 

(In thousands of dollars) (In millions of dollars) (In millions of dollars) Taxable Income

Zero Assets ................................ 25,145 7,740 30.8%

$1 under $500............................. 7,611 1,514 19.9%

$500 under $1,000 ...................... 3,784 950 25.1%

$1,000 under $5,000 ................... 13,638 4,011 29.4%

$5,000 under $10,000.................. 8,617 2,727 31.7%

$10,000 under $25,000................ 12,535 4,021 32.1%

$25,000 under $50,000................ 11,831 3,809 32.2%

$50,000 under $100,000.............. 13,496 4,391 32.5%

$100,000 under $250,000............ 21,275 6,652 31.3%

$250,000 under $500,000............ 20,996 6,790 32.3%

$500,000 under $2,500,000 ......... 85,366 25,998 30.5%

$2,500,000 or more ..................... 777,981 196,257 25.2%

 Total ...................................... 1,002,275 264,860

Tax Gap

The gross tax gap is the difference between the amount of tax imposed by law and what taxpayers actually pay on time.

The tax gap provides an estimate of the level of overall noncompliance and voluntary compliance during the relevant tax

periods. Tax gap estimates provide periodic appraisals about the nature and extent of noncompliance for use in formulating

tax administration strategies. Estimating the tax gap is inherently challenging and requires assessing the merits of alternative

methods, assumptions, and data sources. There is no single approach that can be used for estimating all the components of the

tax gap, so multiple methods are used. The most recent estimates covering the Tax Year 2011-2013 timeframe were released

in FY 2019.

The gross tax gap is the amount of a tax liability that is not paid voluntarily and on time. The estimated annual average

gross tax gap is $441.0 billion. The gross tax gap is comprised of three components: non-filing, underreporting, and

underpayment. The estimated gross tax gap for each of these components is $39.0 billion, $352.0 billion, and $50.0 billion,

respectively. The gross tax gap estimates are also segmented by type of tax; individual income tax, corporation income tax,

employment tax, and estate and excise tax. The estimated gross tax gap for each of these types of tax is $314.0 billion, $42.0

billion, $81.0 billion, and $3.0 billion, respectively. 1

The net tax gap is the gross tax gap less tax that subsequently will be paid either late through voluntary payments or

collected through IRS administrative and enforcement activities and is the portion of the gross tax gap that will not be paid. It

is estimated that $60.0 billion of the gross tax gap will eventually be paid resulting in a net tax gap of $381.0 billion. The net

tax gap estimates are also segmented by type of tax; individual income tax, corporation income tax, employment tax, and

estate and excise tax. The estimated net tax gap for each of these types of tax is $271.0 billion, $32.0 billion, $77.0 billion,

and $1.0 billion, respectively.

1 Individual amounts may not add to totals due to rounding.
OTHER INFORMATION (UNAUDITED) 212

The IRS remains committed to finding ways to increase compliance and reduce the tax gap, while minimizing the

burden on the vast majority of taxpayers who pay their taxes accurately and on time. For additional information on the Tax

Gap, refer to Treasury’s financial statements.

Tax Expenditures

The President’s FY 2022 Budget will not be released before publication of the Financial Report for FY 2020. The tax 

expenditures reported below reflect the narrative and amounts previously published in the FY 2019 Financial Report.

As discussed in greater detail in Note 18—Collections and Refunds of Federal Revenue, tax and other revenues reported 

reflect the effects of tax expenditures, which are special exclusions, exemptions, or deductions or which provide tax credits, 

preferential tax rates or deferrals of tax liability, that allow individuals and businesses to reduce taxes they may otherwise 

owe.

The figures reported in the following table are estimates of tax expenditures using data from previous years and 

economic forecast from the FY 2020 Midsession Review. The largest tax expenditures in FY 2019 are the following (and see 

the table below):

• The exclusion from workers’ taxable income of employers’ contributions for health care, health insurance 

premiums, and premiums for long-term care insurance; 

• The exclusion of contributions to and the earnings of employer defined benefit and defined contribution pension 

funds (minus pension benefits that are included in taxable income); 

• Imputed rental income forms part of the total value of goods and services produced in a country. But unlike returns 

from other investments, the return on homeownership “imputed rent” is excluded from taxable income. In contrast, 

landlords must count as income the rent they receive, and renters may not deduct the rent they pay. A homeowner is 

effectively both landlord and renter, but the tax code treats homeowners the same as renters while ignoring their 

simultaneous role as their own landlords and exempting potential rent they would have paid themselves; 

• Preferential tax rates on long-term capital gains; and

• Taxpayers with children under age 17 can qualify for a $2,000 per child tax credit (figure in table includes nonrefundable portion of credit). 

Largest Income Tax Expenditures as of September 30, 2019

(In billions of dollars) 2019

Exclusion of employer contributions for medical insurance premiums & health care..................... 202.3

Defined benefit & defined contribution pension funds ................................................................ 147.3

Exclusion of net imputed rental income .................................................................................... 121.3

Preferential tax rates on long term capital gains ........................................................................ 111.5

Child tax credit........................................................................................................................ 74.9

Generally, identifying and measuring a tax expenditure requires defining a baseline tax system against which identified 

tax provisions are exceptions. The tax expenditures prepared for the Budget are estimated relative to a simplified 

comprehensive income tax, which defines income as the sum of consumption and the change in net wealth in a given period 

of time. Tax expenditure estimates do not necessarily equal the increase in federal revenues (or the change in the budget 

balance) that would result from repealing these special provisions, for the following reasons: 

• Eliminating a tax expenditure may have incentive effects that alter economic behavior, which can affect the resulting 

magnitudes of the activity or of other tax provisions or government programs. For example, if capital gains were 

taxed at ordinary rates, capital gain realizations would be expected to decline, resulting in lower tax receipts. Such 

behavioral effects are not reflected in the estimates. 

• Tax expenditures are interdependent even without incentive effects. Repeal of a tax expenditure provision can 

increase or decrease the tax revenue effect of other provisions. For example, even if behavior does not change, 

repeal of an itemized deduction could increase revenue costs from other deductions as some taxpayers move into