The IRS (Internal Revenue Service) is cracking down on American citizens who have failed to file their tax returns, with the aim of recovering potentially massive amounts of unpaid taxes. The agency plans to target 125,000 taxpayers with annual incomes over $400,000 who haven’t filed tax returns between 2017 and 2021. The IRS has received third-party information indicating that these taxpayers received taxable income but failed to file their returns. The total financial activity of these taxpayers is estimated to be over $100 billion, and the IRS believes that hundreds of millions of dollars of unpaid taxes are involved.
To initiate the recovery process, the IRS will send letters, known as CP59 notices, at a rate of 20,000 to 40,000 per week to the affected taxpayers. The agency warns that immediate action should be taken to avoid higher penalties and stronger enforcement measures. Failure to pay the owed amount incurs a penalty of 5% of the amount owed each month, up to a maximum of 25% of the tax bill.
The enforcement action targets both high-income individuals and large corporations. The IRS has four new initiatives that aim to increase tax enforcement. One initiative focuses on U.S. subsidiaries of foreign companies that distribute goods in the United States but don’t pay enough tax. The second initiative expands the IRS Large Business & International Division’s Large Corporate Compliance arm, which will audit an additional 60 big corporations with assets worth over $24 billion on average. The third initiative cracks down on the abuse of a corporate tax break that was repealed several years ago. Lastly, the fourth initiative targets individual taxpayers who earn over $1 million annually and have recognized tax debts exceeding $250,000.
While the IRS has stated that it won’t target Americans earning less than $400,000, concerns have been raised about the agency’s ability to fulfill this promise. The Treasury Inspector General for Tax Administration (TIGTA), the watchdog overseeing the IRS, expressed doubts about the IRS’s definition of “high income” and the outdated threshold used by many tax enforcers. IRS Commissioner Danny Werfel has stated that his directive to the IRS is not to increase audit rates for individuals making less than $400,000, but he acknowledged the possibility of overzealous enforcers going against this directive.
The IRS is determined to increase tax enforcement with the help of a $60 billion funding boost from the Inflation Reduction Act. The agency plans to hire an additional 3,700 tax enforcers and invest $46 billion in enforcement. The IRS has already achieved record tax collections of $4.9 trillion in the last fiscal year, thanks to automated collections processes and aggressive audits.
In conclusion, the IRS is taking action to recover potentially massive amounts of unfiled tax returns from American citizens. The agency is targeting high-income individuals and large corporations, aiming to boost tax revenue and strengthen tax enforcement. While the IRS has assured that it won’t target Americans earning less than $400,000, concerns have been raised about the agency’s ability to fulfill this promise. The IRS is set to rely more on automated systems and hire additional tax enforcers to increase tax collections and enforcement efforts.
