In a recently issued notice, #IR 2023-126, the IRS warns that the government is coming after high-income taxpayers who fail to file a tax return. The IRS discusses how the reduction in agency funding in the past impaired the Service’s ability to track down high-income non-filers and what the recent budget increases have permitted the IRS to accomplish in terms of collecting taxes and even securing criminal convictions.
Because examining tax returns is an inherently labor-intensive process, the budget cuts of the last decade have dramatically reduced the Service’s capacity to conduct investigations. The number of revenue agents, the highly specialized enforcement employees who handle complex tax examinations, fell by 35 percent between 2010 and 2018. As the number of revenue agents declined, so did the IRS’s examination rates.
The examination rate for individual income tax returns dropped by about 500 percent from 2010 to 2018. In 2010, approximately 1 percent of returns were examined. Around .2 percent of individual income tax returns were audited in 2018.
The examination rate for corporate income tax returns declined by about 533 percent from 2010 to 2018. In 2010, the IRS examined 1.6 percent of corporation returns. In 2018, the IRS managed to audit only 0.3 percent of them.
In August of last year, President Biden signed the Inflation Reduction Act of 2022 (“IRA”), which provides tens of billions of dollars to the Internal Revenue Service to help the agency regain lost territory in tax law enforcement.
The notice highlights the following achievements:
- In just the last few months, the IRS closed about 175 delinquent tax cases for millionaires, generating $38 million in recoveries. The IRS’s Criminal Investigation team has closed a lengthy list of cases where wealthy taxpayers have been sentenced for tax evasion, money laundering and filing false tax returns. The IRS reports in one case alone, a non-filer was ordered to pay more than $6 million in restitution.
Contact Us
If you are a high-income nonfiler, contact Withum’s Tax Controversy Services Team to discuss how to mitigate or avoid the consequences of failing to file a tax return.
