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IRS Now Pursuing All High-Income Nonfiler Cases

Posted on Jan. 28, 2021

High-income nonfilers are now facing higher scrutiny after resource constraints led to a dip in attention, according to an IRS official.

“We now work all high-income nonfiler cases,” said Darren Guillot, deputy commissioner for collection and operations support, IRS Small Business/Self-Employed Division, during a January 26 USC Gould School of Law virtual conference.

Guillot said that the agency has been pursuing all high-income nonfiler cases from tax year 2016 onward — whether through IRS notices, automated collection system employees, or a revenue officer in the field. Previously, limited IRS personnel had been an obstacle to that pursuit.

“Since 2010, we’ve lost roughly one-half of our revenue officers, and we’ve lost a heck of a lot of people in our campus operations as well,” said Guillot. “We have more balance-due work and delinquent return work than we can assign.”

Guillot said there was a brief period when the agency’s limited resources forced it to choose between pursuing legally perfected debt and collecting more money or pursuing nonfilers, from whom the IRS might or might not be able to collect.

“We did make a conscious decision that was resource-driven to work more balance-due cases,” said Guillot, adding that since that time, high-income nonfilers have received increased attention. A high-income nonfiler is any nonfiler with a total income equal to or greater than $100,000, according to the Internal Revenue Manual.

The IRS announced the “Hi-Def” program in December 2019, which involved IRS employees contacting high-income delinquent taxpayers to ask about their unfiled tax returns. In July 2020 Guillot described a new “Surround Sound” program, “a collaboration between collection, examination, and the Office of Fraud Enforcement” to pursue cases exhibiting some of the badges of fraud that could indicate potential for criminal tax behavior.

Guillot advised practitioners to get clients to file on time even if they can’t pay the balance due. “If only they’d known how steep that failure-to-file penalty [or] that late-filing penalty is, they could’ve saved themselves quite a bit of money,” he said.

“Please remind them it’s cheaper to file on time, and if you can’t afford to pay now, to pay later. Work out a payment agreement with us,” said Guillot.

Tax Gap

The Treasury Inspector General for Tax Administration issued a May 2020 report stating that the IRS should develop a stronger strategy for addressing high-income nonfilers and ensuring their future compliance.

The average annual gross tax gap was an estimated $441 billion for tax years 2011 through 2013, with approximately $39 billion — 9 percent — attributed to nonfilers, the report says.

For tax years 2014 through 2016, TIGTA identified 879,415 high-income nonfilers who didn’t have a satisfied filing requirement, with a total estimated tax due of $45.7 billion. Of those high-income nonfilers, TIGTA found that the IRS didn’t work 369,180 of the cases, with an estimated tax due of $20.8 billion, according to the report.

TIGTA found that the number of individual nonfilers increased over the years addressed in the report, mainly tax years 2010-2016.

For tax years 2010 through 2013, the IRS’s individual master file case creation nonfiler identification process typically identified more than 7 million nonfilers at all income levels annually. “For [tax years] 2014 and 2015, it has increased to over 8 million nonfilers identified annually; and in [tax year] 2016, the number of nonfilers identified jumped to more than 10 million,” according to the report.

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