The Tax Times: IRS Enforcement Targets 125K Wealthy Non-Filers - You Think it May Be Time To Get Compliant?

The Internal Revenue Service is ramping up enforcement against 125,000 high-income taxpayers who haven't filed returns since 2017 as a part of its ongoing efforts to increase tax compliance, the agency's chief told reporters Thursday.

The IRS will begin mailing compliance letters this week to more than 125,000 taxpayers who have failed to file a tax return between 2017 and 2021, IRS Commissioner Daniel Werfel said. The notices will be sent to about 25,000 taxpayers with more than $1 million in income, and the remaining will go to taxpayers with incomes between $400,000 and $1 million, the agency said in a statement. The agency expects to send about 20,000 to 40,000 letters each week, beginning with filers in the highest income categories, Werfel said.

The amount of revenue the agency might be able to recover is uncertain, Werfel said, adding that the agency isn't aware of potential credits and deductions the involved taxpayers might be entitled to receive.

"The Third-Party Information on These Taxpayers
Indicates Financial Activity of More Than $100 Billion,"

Werfel told reporters, though he later noted that it's unclear how much of that is taxable income. "But even with a conservative estimate, the IRS believes hundreds of millions of dollars of unpaid taxes are involved in these cases," Werfel said.

The agency will also be taking steps to update nonfilers who are entitled to a refund, Werfel said. Last year, taxpayers, many with lower incomes, were entitled to a potential refund of nearly $900 because they hadn't filed a 2019 tax return, he said, adding that those taxpayers will be updated later in the tax season.

Werfel urged taxpayers who haven't filed to do so voluntarily and as quickly as possible, saying that failure to act can lead to IRS compliance activities, including audits, as well as criminal prosecution. Typically, when taxpayers are issued a letter, there is an eight-week window between the time the letter is received and when taxpayers need to contact the IRS with a filing, he said.

Since 2016, the IRS nonfiler program has only run sporadically because the agency hasn't had the resources to pursue nonfiler cases, Werfel told reporters. The Inflation Reduction Act's major investment has given the agency the capacity to restart the nonfiler program, he added.

The program has been updated, Werfel said, adding that the agency used to identify nonfilers as a global group, send the notices out and get follow-up from taxpayers in the form of phone calls, incoming letters of dispute and incoming tax returns.

The IRS now has the staffing and technology to efficiently follow up on those notices, Werfel said. Another is that the agency is prioritizing high-income taxpayers, he said.

"We are establishing that our resources will be focused first and foremost on those taxpayers that are of higher means," Werfel said. "For taxpayers that are of lower means, our emphasis will be on working with them around making sure that they file because, in many cases, taxpayers at a lower income range are actually owed a refund or owed some type of credit."

It's outrageous that so many high-income individuals have routinely gotten away with failing to file tax returns, Senate Finance Committee Chairman Ron Wyden, D-Ore., said Thursday, adding that it's great that the IRS is going after them.

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