WASHINGTON – Tens of thousands of wealthy Americans are failing to comply Recently renovated The IRS is working to get them to file their tax returns, according to data obtained exclusively by CNBC.
A quirk in federal tax law may incentivize wealthy people who want to avoid taxes to simply not file a return. That’s because filing a false tax return is a felony, but not filing a tax return at all is just a misdemeanor.
Because the IRS and Department of Justice have limited resources to pursue misdemeanor violations, people who don’t file tax returns are unlikely to face prosecution. So many millionaires may just be taking a gamble that they won’t face any consequences for not filing a tax return.
In early 2024, the IRS began contacting what it calls “high-income non-filers” and urging them to file returns with the tax agency.
“We have made progress,” an IRS official told CNBC, explaining that high-net-worth cases may take time to process. “That being said, there is still a lot of work to be done. We will continue to pursue these individuals. This is not a job we will give up.”
Reinvestigate
Notices were sent in February 125,000 cases Targeting wealthy taxpayers who have not filed a tax return since 2017.
In these cases, the IRS received third-party information (such as through W-2 and 1099 forms) indicating that these individuals had income in excess of $400,000 but failed to file a tax return.
Prior to the Inflation Reduction Act of 2022, the IRS had been operating the non-filer program sporadically since 2016.
U.S. President Joe Biden extends his pen to U.S. Senator Joe Manchin (D-WV), Senate Majority Leader Chuck Schumer (D-N.Y.) and U.S. House Majority Whip James Clyburn (D-S.C.) looks on as Biden signs the Inflation Reduction Act of 2022 into law during a ceremony in the State Dining Room of the White House in Washington on August 16, 2022.
Leah Millis | Reuters
With funding from the new law, the IRS now has the resources to conduct this core tax administration work and begin efforts to identify non-filers in the fall of 2023, the IRS said.
In the first six months of the initiative, nearly 21,000 wealthy unfiled taxpayers filed their returns, paying an additional $172 million in taxes, according to a September report.
The IRS official told CNBC that in the three months since the September report was released, the number of non-filers who have filed has jumped from 21,000 to 26,000, and total tax collections from these filers have increased to $292 million. Dollar.
Some taxpayers who receive a formal alert, known as a CP59 notice, have not filed a tax return for years. Therefore, the total number of delinquent taxpayers may be less than the total number of mailed notices.
The IRS said it believes these taxpayers earned more than $100 billion in total income. The agency estimates these people owe at least hundreds of millions of dollars in back taxes.
Revenue of at least US$1 million
Yet despite the extra resources, the IRS is still failing to persuade wealthy people to file their tax returns, according to data provided to CNBC by an aide to Senate Finance Committee Chairman Ron Wyden, D-Ore. achieve significant success.
Ron Wyden, a Democrat from Oregon and ranking member of the Senate Finance Committee, meets with U.S. Trade Representative Robert Lighthizer (not pictured) in Washington, D.C., March 12, 2019 delivered a speech at the hearing.
Anna Money Tree | Bloomberg | Getty Images
As of August, only 5,460 of the roughly 25,000 highest-income non-filers who had received CP59 warning notices this year – typically those with questionable income of more than $1 million – had filed returns.
At least so far, it appears that many of these very wealthy non-filers are not facing legal consequences for failing to meet their civil and legal obligations.
The IRS told the committee it was “too early to report” how many non-filers have been referred to the Justice Department for criminal investigation, according to Senate aides.
But as of October 28, 2024, IRS Criminal Investigation had conducted only 62 public tax investigations in which individuals on a list of 25,000 very wealthy non-filers were targeted. This equates to a survey rate of approximately one quarter of 1%.
IRS offices in Washington, D.C.
Adam Jeffery | CNBC
In an email to a Senate committee provided to CNBC, the IRS explained the relative lack of enforcement against thousands of non-compliant millionaires.
“Both the Department of Justice and the IRS Criminal Investigation Division have limited resources, which in most cases are used to investigate and prosecute felonies. Therefore, the likelihood of criminal investigation and prosecution of non-filers is very low,” the agency wrote Tao Tao.
The IRS told a Senate panel: “The low likelihood that non-filers charged with misdemeanor violations will receive meaningful prison sentences is contrary to the agency’s mission to initiate criminal investigations that are most likely to yield substance.” Sexual deterrent effect.
Revenue exceeds $5 million
According to data provided by CNBC, some individuals who did not file tax returns are very wealthy.
Of the approximately 25,000 wealthiest non-filers identified by the IRS, nearly 2,000 of them may have earned more than $5 million in any given tax year for which they did not file a return.
In the roughly 10 months since those taxpayers earning more than $5 million received warning notices, only 551 have filed returns, according to figures presented to the Senate.
felony proposal
According to the Ministry of Finance, one approach is to increase federal revenue The criminal penalties for those who fail to declare for a long time will be increased.
The Ministry of Finance has recommended Certain non-filer misdemeanor offenses shall reclassified as a felony.
Under current law, in most cases, a person who owes federal taxes and fails to file a tax return can only be charged with a misdemeanor. If convicted, the misdemeanor is punishable by imprisonment for not more than one year and a fine of not more than $250,000, or in the case of a corporation, a fine of $200,000, or both.
But under the Treasury Department’s new proposal, “any person who knowingly fails to timely file a required tax return during any three-year period within a five-year period” and whose unpaid taxes for that five-year period total at least $250,000,” will be subject to new enhanced criminal penalties for failure to file.
Daniel Acker | Bloomberg | Getty Images
In these cases, the offense will be classified as a felony and is punishable by imprisonment for not more than five years, a fine of up to $250,000, or in the case of a corporation, a fine of $500,000, or both.
“Non-compliance by high-income taxpayers has a significant corrosive effect on tax administration and collection,” the Treasury Department wrote in the report. proposal Reclassify offenses.
The department noted that wealthy individuals who do not pay taxes shift the burden of financing the federal government onto other taxpayers.
“Increased criminal penalties for high-income individuals who knowingly and repeatedly fail to file tax returns will provide a more effective deterrent to this blatant tax evasion, encourage voluntary compliance, and help narrow tax collections,” the Treasury Department wrote. gap.
About The Author
