While millions of people are filing their income tax returns for the year, the Internal Revenue Service says it’s telling millionaires who haven’t filed in years that they better get to it.
The IRS says it’s starting to send more than 125,000 notices about unfiled tax returns to high-income households, and the agency’s conservative numbers estimate there could “hundreds of millions” of dollars in unpaid taxes laying out there.
Thursday’s announcement is another IRS bid to improve compliance among high-end taxpayers after an infusion of funding from 2022’s Inflation Reduction Act.
More than 100,000 of the notices are going to households with income estimated to be between $400,000 and $1 million, while more than 25,000 notices are bound for households with at least $1 million.
The notices will start getting mailed this week and in some cases, they’ll be about income tax returns that should have been filed in 2018.
The IRS knows about the unfiled returns because it already has certain tax forms from third parties reporting income, said IRS Commissioner Danny Werfel.
“The IRS knows who these non-filers are,” and the third-party forms indicate “these people received significant income but failed to file a tax return.” Put together, the third-party forms suggest more than $100 billion in financial activity that hasn’t been recorded into a tax return, the IRS said.
Because of shrinking IRS staff and budget capabilities over the years, the program targeting non-filers “has only run sporadically since 2016,” Werfel said.
Sending out notices about unpaid taxes is the easy part. The hard part is the labor-intensive back-and-forth correspondence with taxpayers and their representatives after the notice goes out, Werfel explained.
The IRS has hired between 5,000 and 7,000 new staff for customer service and account management since the Inflation Reduction Act and extra staff for collections, he noted.
“For non-filers, this isn’t going to get better with time,” Werfel said. “People receiving these letters should take immediate action to avoid additional follow-up notices, higher penalties as well as increasingly stronger enforcement measures.”
These very tardy taxpayers could face failure to file penalties, failure to pay penalties (plus interest) and later down the road, enforcement steps including tax liens. There’s typically an eight-week window after the letter when taxpayers need to come back with a tax return, Werfel said.
The announcement is the latest chapter in IRS efforts to crack down on tax evasion at the top of the income ladder, from businesses and high-net-worth households.
The IRS has already been putting more focus on collecting unpaid back taxes from rich households. It’s already collected nearly $500 million in delinquent taxes on undisputed tax debts from already-filed returns.
Last week, the agency said it’s going to audit several dozen companies and partnerships about the write-offs they’ve been claiming on the company jet. That’s in addition to a different batch of audits for other corporations and partnerships that the IRS has announced.
The failure to file tax returns can become a criminal offense in more extreme cases, Werfel said. “We work with taxpayers and there’s many, many step in the process typically before we get to a criminal outcome,” he said.
In fiscal year 2023, the IRS’s criminal investigation division started 251 investigations into non-filer cases, according to an annual report. Non-filers convicted on criminal charges and sentenced last year were ordered to serve 28-month prison terms on average, the division’s report said.
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