IRS Fails To Pursue Thousands Of Rich Tax Cheats, Watchdog Says
The Treasury Inspector General for Tax Administration found that 879,415 high-income individuals who didn’t file returns cumulatively failed to pay $45.7 billion in taxes from 2014 to 2016 and that the agency hasn’t tried to collect from many of those taxpayers. The IRS didn’t put 326,579 of the cases into its enforcement system, and it closed 42,601 of the cases without ever working on them.
Among those who haven’t paid their taxes are approximately 1,891 individuals who owe the IRS more than $1 million, according to the report. The number of people who have been failing to file tax returns — a crime that could come with steep penalties or as many as five years in prison — has been increasing in recent years. “Pursuing nonfilers is one of the IRS’s most efficient enforcement strategies because issuing nonfiler notices can be a cost-effective tool that requires little more than automated notices,” the report said.
The IRS has faced budget cuts and a a 19% decline in collections staff, which has resulted in the IRS sending less delinquent notices and pursue fewer nonfiler cases.
Failing to collect billions of dollars in unpaid taxes has a cost to taxpayers who follow the rules. The average U.S. household is paying an annual surtax of more than $3,000 to subsidize taxpayers who aren’t paying all they owe, the Taxpayer Advocate Service, an independent oversight office within the IRS, found in January. The calculation is based on the assumption that the government is seeking to collect a fixed amount of revenue, leaving compliant taxpayers to pay more to subsidize noncompliance.
See Laura Davison, IRS Fails to Pursue Thousands Of Rich Tax Cheats, Watchdog Says, Bloomberg News, June 1, 2020.
Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.