On December 3, 2020, the IRS published “How the IRS prioritizes compliance work on high income non-filers through national and international efforts” in the Closer Look. It addresses how the IRS is in pursuit of high-income non-filers as an important service and gives its respect to many Americans who pay their taxes. The IRS’s sentiment is that 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”.
“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. On behalf of the hardworking taxpayers who follow the rules and pay their fair share, it’s the duty of dedicated IRS compliance employees to hold others to the same standard”.
IRS is addressing non-filers more aggressively
The Closer Look outlines these important points for non-compliant taxpayers:
- High income non-filers is an IRS priority.
- earlier in 2020 we shifted a considerable amount of resources, especially in collection activities, to address the problem more aggressively.
- IRS 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 cannot pay their bill entirely.
- For those non-filers who did not respond, IRS has an ambitious strategy to bring them into compliance with our nation’s tax laws and help address the tax gap.
- IRS hired more revenue officers (civil enforcement officers) and prioritized the most egregious non-filer cases so they can reach out to non-responsive taxpayers directly.
- Although the IRS expectation was to have compliance officers do more face-to-face visits with taxpayers who failed to respond to the IRS notices, COVID-19 delayed these in-person visits.
- Despite this, IRS 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 did not resolve — are being handled by the IRS new Office of Fraud Enforcement. This Office was created early 2020, and acts like a computer’s Central Processing Unit by connecting 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
There is a common misperception among non-filers
Being non-filers “simply not filing will not keep them from being on the IRS radar”. Even if they do not file, IRS still has ways to know how much income non-fliers should be reporting. IRS has a robust system to collect information from many sources to identify possible income tax reporting issues, including multiple third-party sources, taxpayers’ previous filing histories and their addresses. It also has other information sources 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
- Automatic FATCA information exchanges
Best to come forward before the IRS finds you
If the IRS finds you, the options for becoming compliant are narrower. If you owe income tax, decide how you intend to file your late income tax returns. There are several options. Choosing the right filing options for you is a critical task that should be done in consultation with the CPA who is assisting you and possibly with an income tax controversy attorney.
Get started with your coming into compliance action plan.