The TIGTA report said the IRS never reviewed the files for 369,180 of the 879,415 high-income nonfilers identified by TIGTA representing $20.8 billion in unpaid taxes. Of those 369,180 high-income nonfilers, 326,579 were not placed in inventory to select for work and 42,601 were closed out of the inventory without ever being worked. The report said the remaining 510,235 high-income nonfilers – totaling anestimated tax due of $24.9 billion – are in one of the IRS collection inventory streams. The TIGTA report concluded that the IRS needs to take more actions to address high-income nonfilers and made several recommendations including prioritizing nonfilers, designating a senior management official the specific duty to address nonfiling, allocating more resources to address nonfiling, and, implementing controls that will assist in identifying and prioritizing high-income nonfilers.
Earlier this year, the IRS announced an initiative targeting high-income nonfilers, called Hi-Def, with the intent to address the perception that the IRS does not pursue delinquent wealthy people. Before being temporarily shut down by the coronavirus, the IRS was contacting taxpayers for its high-income delinquent program. One high level IRS official was quoted at a conference in December 2019 as saying, “I’ve got the maps, and I know where they are. I know where they live. I know exact numbers by states. So we are coming and we are going to be asking them why they haven’t filed returns.”
Late filed tax returns are typically subject to civil late filing and late payment penalties under IRC Section 6651. More importantly, failure to file a tax return is considered a crime pursuant to IRC Section 7203. It is generally a misdemeanor punishable by a fine of up to $25,000 ($100,000 in the case of a corporation) or imprisonment of not more than one year, or both. If the failure to file is willful, it is a felony and the maximum imprisonment increases to 5 years.
It is anticipated that the IRS will begin contacting high-income nonfilers again starting July 15th, so there is a quickly-closing window of opportunity for taxpayers to voluntarily clean up nonfiling issues and possibly avoid civil penalties and criminal investigations. Delinquent taxpayers should consult with a tax professional as soon as possible to discuss the options available for addressing delinquent tax returns, including making a voluntary disclosure, which we discussed in a prior blog post.
For any questions on this or any other tax-related matter, please feel free to contact me at (214) 749-2456 or firstname.lastname@example.org.