IRS to Target High-Income Non-Filers Owed Hundreds of Millions in Back Taxes

Since 2017, the IRS has identified more than 125,000 cases of high-income earners who have not filed their federal income tax returns. These individuals are believed to owe hundreds of millions of dollars, with the actual amount potentially even higher as the IRS is unable to account for potential tax credits and deductions.

IRS Initiative and Compliance Letters

In response to this issue, IRS Commissioner Danny Werfel announced that the agency would be taking action against non-filers. The IRS will begin sending out over 125,000 compliance letters this week, targeting individuals with incomes exceeding $400,000. Specifically, over 25,000 letters will be sent to those with incomes over $1 million, while more than 100,000 letters are intended for individuals with incomes between $400,000 and $1 million for the tax years 2017 to 2021.

Identifying Non-Filers

The IRS has been able to identify non-filers through third-party information such as W-2s and 1099s, which indicate that these individuals were earning money but not filing their tax returns. This enforcement effort has been made possible by funding from the Inflation Reduction Act, which was enacted in August 2022.

Impact and Revenue Projections

The exact number of taxpayers affected by these compliance letters is yet to be determined, as some non-filers have multiple years included in the case count. However, it is clear that the IRS is stepping up its enforcement efforts, with the Treasury Department and the IRS estimating that tax revenues could increase by as much as $561 billion from 2024 to 2034 due to these measures.

Necessity of Proper Funding

IRS officials emphasized the importance of proper funding, noting that budget and staff limitations had hindered their ability to run audits for non-filers consistently since 2016. The Inflation Reduction Act has provided the necessary resources for the IRS to identify and address non-filers, ensuring fairness for all taxpayers.

Penalties for Non-Filers

The penalty for failing to file a tax return amounts to 5% of the amount owed every month, up to 25% of the tax bill. IRS Commissioner Werfel warned that the risk and potential for penalties and interest would only grow over time for those who have not filed their tax returns for previous years.