In May, the Treasury Inspector General for Tax Administration (TIGTA) issued a report that confirms the Internal Revenue Service is not pursing high income taxpayers that fail to file tax returns.
As noted in the first paragraph of the full report, “The intentional failure to file Federal tax returns is a crime. Nonfiling of tax returns can also be subject to civil fraud penalties.” As the report notes, “Intentional nonfiling of tax returns by those with significant financial resources and sophistication is a brazen form of noncompliance."
The annual tax gap is one of the analysis that suggests which demographic groups are paying their taxes and which are not. The tax gap is the difference between the amount of tax revenue that is estimated to be owed to the government, and the amount of revenue that is actually collected. Amazingly, the TIGTA report clearly finds that high-income earners are the largest contributor to the annual nonfiler tax gap, yet the IRS takes steps each year to retire a large part of their inventory of these potential claims without review or criminal tax investigation.
For the IRS, those earning over $100,000 per year are considered “high-income” taxpayers. There were 879,415 high-income nonfilers identified for tax years 2011 to 2013. TIGTA notes the IRS did not evaluate 369,180 of these nonfilers, who owe an approximate tax debt of $20.8 billion. TIGTA also found the IRS policy to work only one tax year at time does not address repeat high-income offenders and their respective tax liabilities.
Improvements suggested in the report include:
- Create a senior management position with specific responsibility for the nonfiler program
- Work consecutive tax year returns to better identify and prosecute tax fraud
- Stop removing high-income nonfiler cases from the review inventory without civil or criminal tax audit.
These serious shortfalls result from the systemic hollowing out of the IRS budget. Notes IRS Commissioner Eric Hylton, “The issues TIGTA found in this audit are reflective of the resource challenges the IRS has faced in recent years. Since FY 2010, the IRS has lost nearly a third of its enforcement personnel, including more than half of its revenue officers (the Collection employees who work the most complex cases). To address this trend of declining resources, our budget request included funds for new and continuing investments in expanding and improving the effectiveness and efficiency of our overall tax enforcement program.”
Despite the clear fallout of defunding the IRS, it is not likely this issue will be addressed anytime soon.
Cleveland tax attorneys provide strong defense on civil and criminal tax matters
From offices in Chicago and Cleveland, Illinois, the tax attorneys at Robert J. Fedor, Esq., LLC deliver experienced legal service if you face a criminal tax charge, failure to file, or other allegation. Call us at 800-579-0997 today or contact us.