Though it’s somewhat intuitive simply due to the name, high-income non-filers are individuals who have earned or made a significant amount of money but haven’t filed their taxes accordingly. There are hundreds of thousands of Americans who do not file their taxes and, as a result, owe billions of dollars in back taxes to the federal government. The problem? The problem clearly lies in that the Internal Revenue Services (IRS) has failed to actively pursue these non-compliant non-filers in the past. However, the tides are changing.
The Treasury Inspector General for Tax Administration issued a recent report in which it was estimated that of the average annual tax gap which consists of about $441 billion, about $39 billion can be attributed to the non-compliance of high-income non-filers. These non-filers are people who don’t file their taxes or pay the taxes owed on their returns. Of those, many are high-income non-filers who tend to earn at least $100,000 per year, and this particular group comprises a large percentage of the non-filer tax gap.
Recently, the IRS has started to crack down on high-income non-filers as outside firms are being brought in to monitor their progress, which is shedding light on the growing problem. If you believe you are a high-income non-filer, this could be bad news for you. However, there are also independent firms, like Enterprise Consultants Group, who specialize in helping individuals and small businesses who owe the IRS back taxes to negotiate a fair settlement – this may serve as the answer for many non-filers.
High-Income Non-Filers: The Numbers
The numbers never lie. Of the non-filers for the period of 2014 through 2016, there were 879,415 high-income non-filers who did not satisfy the requirements for federal tax filing. Together, they owe an estimated $45.7 billion. The IRS didn’t work on an estimated 369,180 of their cases, which makes up an estimated $20.8 billion in lost tax revenue. Within that number, there are individuals who were not placed in inventory to be selected for work, others who were closed out of the inventory, and those who probably won’t be contacted as the IRS has a dwindling number of employees. Revenue officers are employed to contact taxpayers and gather funds owed; however, as one can imagine, they are extremely overwhelmed and overworked due to the recent COVID-19 epidemic.
The recent pandemic and state of affairs nationwide has caused the IRS to actually remove many high-income non-filer cases from its docket, which subsequently eliminated about $3.2 billion in estimated tax dollars that the IRS will likely never receive. Even so, there is no way to tell which non-filers were removed and which still remain on the IRS’s radar.
With these smaller numbers, it is more likely that the IRS will be able to explore more of these cases. Therefore, if you haven’t filed your taxes in a few years (or even longer), you could be the target of their investigations. To avoid legal ramifications and penalties, high-income non-filers should consider proactively handling their past federal tax debts rather than waiting for the IRS to call.
Why the IRS Can’t Break Through
The IRS faces countless challenges with each passing tax year; however, one of the major reasons the IRS cannot seem to efficiently sift through their workload is because of the policy they employ of only working on single-tax-year cases, regardless of how many years of returns haven’t been filed by a single taxpayer. The IRS cannot and will not look at multiple years of non-filing collectively or as a whole. This is somewhat limiting as many taxpayers simply choose not to file for years at a time or a designated period. Of the top 100 high-income offenders with unfiled taxes for the entirety of 2014 to 2016, the IRS was missing an estimated $9.9 billion in taxes – but they will not pursue the owed funds altogether due to their segmented collection process.
The IRS is actively trying to change its policies to address this issue, but so far, they have failed to make any significant headway or progress, and thus, the problem has only continued to worsen. However, with increased pressure mounting, the IRS is now dedicated to tackling this problem, identifying non-filers, and prosecuting them.
The Non-Filing Numbers Continue to Rise
Because of an extreme lack of enforcement, it seems as though non-filing is becoming its own financial epidemic. Even as the number of ways to file continues to increase and the cost of filing continues to decrease, the number of high-income non-filers across the United States has actually continued to tick upwards in recent years. More and more citizens aren’t filing their taxes. Why? One can only conjure the guess that this is most likely due to the fact that many Americans believe they can get away with the failure to file.
The statistics are staggering. Estimates suggest that in the fiscal years of 2010 through 2013, approximately 7 million Americans chose not to file and pay taxes, and the reports found that this shocking rate increased to nearly 10 million in 2016. While the IRS used to track and proactively pursue most non-filers in a timely fashion, they simply do not have the resources to do so anymore, and the public is catching on. Some non-filers realized that their problems had caught up with them when they couldn’t qualify for the economic stimulus that was passed as a result of the COVID-19 pandemic. However, the high-income non-filers would not have qualified for the stimulus payment anyway. Even so, the recent pandemic and associated stimulus may spark renewed attention to thousands of Americans’ non-filing status and bring to light some real consequences.
New Strategies for Identifying Non-Filers
In 2018, the IRS proactively established new strategies for identifying and pursuing non-filing cases. However, while the strategy was plotted, it hasn’t actually been fully implemented. Because of the lack of follow through, it isn’t entirely clear how effective the new collection protocols would be even if they were fully enacted. The IRS has stated that it needs to closely reexamine their non-filer identification and collection approach and re-identify and prioritize non-filing cases that will allow for revenue maximization and voluntary tax filing. Because it isn’t entirely clear if those newly plotted pathways and strategies will work effectively, the IRS does have several outside consulting firms assisting them with their engagement in further trials and testing to discover more about the most effective and consistent collection techniques and strategies.
Additionally, the IRS is also turning to automation and analytics to help gain insight into the best methods available to identify and locate non-filers and collect the back taxes the federal government is owed. With new high-income non-filer identification and collection protocols being set in motion, it’s clear that if you are a non-filer who wants to avoid the wrath of a federal revenue officer, it’s best to proactively seek a retroactive filing resolution before the IRS determines their own best course of reparative action for you.
Are you aboard the high-income non-filer sinking ship? For those who haven’t filed taxes in a few years and are afraid the IRS is going to coming calling, it’s better to get ahead of the game and start working on an immediate resolution.
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