(Bloomberg Law) — The IRS said it expects to collect hundreds of millions of dollars from high-income people who have not filed federal income tax returns under a new initiative in the agency's fight to collect money owed by wealthy taxpayers.
The agency is using letters to target 125,000 cases of taxpayers with incomes of more than $400,000 who failed to file returns between 2017 and 2021, according to a Thursday announcement. Letters to non-declarants are set to go out this week.
The IRS called the expected hundreds of millions of dollars a “conservative estimate.” The targeted taxpayers have an economic activity of more than $100 billion, according to the agency.
The IRS is largely focused on closing the tax gap, or the difference between what is owed and what is paid, targeting high net worth individuals. The Democrats' Tax and Climate Act gave the agency tens of billions of dollars in funding, allowing for increased enforcement efforts. Large partnerships and corporate jet users are other areas where the IRS is looking to recover money owed.
The approximately 25,000 unreported cases targeted in this campaign involve revenues of more than $1 million. The IRS has third-party W-2 and 1099 forms that point out who these high-income non-filers are. About 20,000 to 40,000 letters are set to go out each week, starting with the highest earners, the IRS said.
Persons who do not comply with initial IRS CP-59 notices will receive subsequent notices and higher penalties, in addition to interest. For people who continue to not file, the IRS can file a replacement return based on income and won't include deductions or exclusions it doesn't know about. Prosecution is also an opportunity for continued non-compliance.
IRS Commissioner Danny Werfel said during a press call that the agency needed to rebuild its capacity to institutionalize compliance efforts for non-filers in the wake of the pandemic. The IRS resumed automated collection notices late last year after a nearly two-year hiatus due to a processing backlog and staff shortages.
The agency now has more than 5,000 new customer service and account managers hired through the 2022 funding, Werfel said.
The difference between this non-filtering effort and those in the past is the emphasis on high-income people, Werfel said. For people with incomes below $400,000, the IRS is more focused on helping them file returns because they are more likely to qualify for a refund, he said.
“We will use all enforcement dollars appropriated under the Inflation Reduction Act to increase scrutiny on those earning more than $400,000,” Werfel said.
To contact the reporter for this story: Erin Schilling in Washington at (email protected)
To contact the editors responsible for this story: Naomi Jagoda at (email protected); Kathy Larsen at (email protected)