IRS Report on Prioritizing Compliance Work on High Income Non-Filers

In the IRS executive column CL-2020-08, the IRS explains how it continues to focus on ensuring integrity and fairness in our nation’s voluntary tax system despite the challenges  of COVID-19. 

“Taxpayers who exercise their best efforts to file their tax returns and pay their taxes, or enter into agreements to pay their taxes, deserve to know that the IRS is pursuing others who have failed to satisfy their filing and payment obligations,” explains Eric Hylton, Commissioner, Small Business 

Even in a challenging year like this, when the IRS has provided assistance and help for those affected by COVID-19 through Economic Impact Payments and various tax relief efforts, people should understand we haven’t lost focus on identifying and pursuing high income non-filers who live here in the United States and abroad.

The IRS has always considered high income non-filers a priority, but earlier in 2020 we shifted a considerable amount of resources, especially in our collection activities, to address the problem more aggressively. We identified and contacted taxpayers who made more than $100,000 and had not filed a tax return before 2019 to ensure they understood their obligation to file and pay income taxes. Most of those taxpayers responded and have either filed or paid their tax obligations. Others are working with us by using the many resources available for those who can’t pay their bill entirely.

For those non-filers who didn’t respond, we have an ambitious strategy to bring them into compliance with our nation’s tax laws and help address the tax gap. Specifically, in my Small Business/Self Employed organization, we hired more revenue officers — our civil enforcement officers — and prioritized the most egregious non-filer cases so they can reach out to non-responsive taxpayers directly.

Initially, our expectation was to have compliance officers do more face-to-face visits with taxpayers who failed to respond to the IRS notices, but COVID-19 delayed these in-person visits. Despite this, we continued to focus on priority cases, identifying about 1,500 of the most serious ones, many with millions of dollars of suspected unclaimed incomes. The revenue officers worked hundreds of these cases within the first 60 days of the higher-income enforcement effort, starting in February 2020.

Some of the high income non-filer cases from this year’s focused effort — and others that taxpayers didn’t resolve — are being handled by our new Office of Fraud Enforcement. Created earlier this year, the office sits in our SBSE organization and acts a bit like a computer’s Central Processing Unit, or CPU. It connects the dots across all IRS divisions, and sometimes across federal agencies, to confront emerging threats and bring offenders to justice with both civil and criminal penalties. The office is also reviewing high income non-filer cases that will be referred to the IRS Criminal Investigation Division to potentially be pursued criminally for offenses, including failure to file, tax evasion and tax fraud.

Blatant tax offenders can face large penalties, including interest and back taxes, and even serve prison time, like this Alabama salesman sentenced for tax evasion last month. As court documents note, he stopped filing taxes, thinking he could hide his income overseas and used other tactics to avoid paying taxes. He’s now paying back more than $1 million owed and was sentenced to two years in prison.  

Here’s a common misperception among non-filers. Simply not filing won’t keep them from being on our radar. Even if they don’t file, we still have ways to know how much income they should be reporting. We have a robust system to collect information from many sources to identify possible tax issues, including multiple third-party sources, taxpayers’ previous filing histories and their addresses. We also have other legal avenues that provide potential information for cases including:

• Information provided to the IRS whistleblower program
• Information received from United States Attorney offices across the country
• Ongoing investigations by other law enforcement agencies
• Tips from colleagues, neighbors and friends
• Tax treaty and information exchange per case investigation requests

Examination  within our operating divisions is also on the frontlines of our increased focus on high income non-filers through audit efforts as well as ensuring audit rates significantly increase as income rises. Our IRS Deputy Commissioner for Services and Enforcement, Sunita Lough, wrote about this earlier.

So as the SBSE Commissioner, I have an important message for high income non-filers: It’s always better to work with us as soon as there’s an issue. These situations only get worse with time. And rest assured, we will continue to identify and contact non-compliant taxpayers, offer payment options and hold those who refuse to comply accountable.

Read more at: Tax Times blog