Most people probably assume that wealthy individuals are priority number one on the IRS’s radar. There is some truth to this characterization, as audit rates for high-income filers are much greater than the audit rates experienced by the general population. However, the Treasury Inspector General (TIGTA) — a government watchdog responsible for identifying and eliminating waste, fraud, or corruption in government – has identified problems with the IRS’s already reasonably aggressive approach towards high-income tax filers.
Any time TIGTA identifies problems in the IRS’s approach to tax collection and enforcement, taxpayers should expect efforts to address the identified problems. For high-income individuals who have failed to file their taxes, this report is likely a harbinger of potentially significant enforcement efforts. If you have failed to file your taxes, the Sacramento tax lawyers of NewPoint Law Group, LLP can work to minimize or eliminate the penalties you face. To schedule a confidential tax consultation, call 800-358-0305 or contact us online today.
Recent TIGTA Study Addressed Whether IRS Was Effectively Pursuing Delinquent Taxpayers with Expired Tax Extensions and Other Non-Filers
While TIGTA praised the IRS’s efforts that led to the collection of more than $3.3 trillion in tax revenue in 2015, the watchdog reports that there are problems with the IRS’s systems. These problems are contributing to a tax gap that is currently calculated at nearly half a billion dollars. Of this overall tax gap, roughly $28 billion is attributed to lax or improper controls regarding the failure to file taxes, the failure to pay taxes on the delinquent return, and the failure to pay penalties and interests stemming from potential delinquencies. Essentially, TIGTA is putting the IRS on notice that any issues with its systems relating to tax non-filers must be addressed.
How Does the IRS Identify Taxpayers Who Fail to File Taxes?
The IRS utilizes a variety of methods to detect taxpayers who have failed to file taxes or are otherwise delinquent with their tax filing or payment obligations. To start, the IRS requires both the taxpayer and the employer to submit corresponding tax documents. Similarly, stock brokers and mutual fund companies are also required to report income and transactions on Form 1099-B to both the IRS and to the taxpayer. Utilizing information and form-matching processes, the IRS can detect when a taxpayer fails to report income.
The IRS has also developed a section known as the Non-filer Inventory and Analysis Group. This group analyzes taxpayer data and biannually publishes Case Creation Non-filer Identification Process (CCNIP). CCNIP identifies non-filer taxpayers and allows the IRS to characterize them by certain characteristics like income or the estimate tax obligation.
What Improvements in Tax Non-Filer Enforcement Does TIGTA Suggest?
TIGTA suggested that the IRS make various improvements in its systems, including correcting programming errors, to better identify and pursue tax non-filers. However, two particular recommendations should raise a red flag for any high-income individual who has failed to file taxes.
First, Recommendation 3 suggests that the IRS should:
Determine and document which non-filer cases are high-priority cases, including HINFs [high–income non-filers] with and without expired extensions…ensure that HINF cases with expired extensions are addressed in the same manner as HINF cases without expired extensions and that such cases are appropriately considered and allocated resources.
The IRS agreed with this recommendation and is therefore likely to implement additional policies and procedures to target high-income non-filers. Even among high-income tax filers, one’s risk of an audit will increase with income since the IRS assigns additional priority to these situations.
Recommendation 4, also agreed to by the IRS, states that the IRS should:
Analyze the population of TY 2013 HINFs with expired extensions identified as not having filed a tax return and notify those taxpayers of the requirement to file the TY2013 tax return.
This is bad news for high-income taxpayers who thought that they avoided making the required tax filings or tax payments for 2013. As the recommendation suggests, the IRS will be re-examining the inventory of filers with missing tax returns. These individuals will be notified of the deficiency and be expected to correct it, and pay any fines, penalties, and interest that might apply.
Failed to File Taxes? Correct Tax Non-Filings Before an IRS Audit with a Sacramento Tax Attorney
If you failed to file taxes in past years, be on notice that the IRS is re-examining its inventory of taxpayers with outstanding tax obligations. While you may have slipped through the cracks previously, it is highly likely that TIGTA’s rebuke will motivate the IRS to identify taxpayers who have failed to file. Taxpayers may be able to avoid a worst-case scenario by taking action to correct their past non-compliance. A Sacramento tax audit attorney at NewPoint Law Group, LLP may be able to help. To schedule a confidential consultation, call 800-358-0305 today.