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Individuals and households earning more than $100,000 often have more complicated tax situations than their lower-earning counterparts. That could be especially true this year, as many wage-based employees are finding themselves working from home and wondering about the tax implications of a home office. Still, the IRS warns that high income non-filers are going to be under the microscope now, and that anyone who fails to file their tax return on time could get a call, or worse.
At a January 26, 2021 virtual conference hosted by the USC Gould School of Law, Darren Guillot, deputy commissioner for collection and operations support within the IRS Small Business/Self-Employed Division had a confession to make. He said since 2010, the IRS had been prioritizing collecting legally perfected debts over going after nonfilers. The problem was limited personnel.
“Since 2010, we’ve lost roughly one-half of our revenue officers, and we’ve lost a heck of a lot of people in our campus operations as well. . . . We have more balance-due work and delinquent return work than we can assign.”
They made a conscious decision to collect more money rather than take a chance that a high-income non-filer was going to be collectible.
In May 2020, the Treasury Inspector General for Tax Administration warned that the IRS needed a stronger strategy for addressing high-income non-filers, to encourage them to file their tax returns on time in the future. The ultimate goal is to close the tax gap -- the gap between taxes owed and taxes collected. The average annual gross tax gap was approximately $441 billion between 2011 and 2013. About 9 percent of that, or $39 billion, came from non-filers. Between 2014 and 2016, that number had grown to $45.7 billion, spread among 879,415 high-income non-filers.
Now the priorities within the IRS are going to change. In December 2019, the IRS announced its “Hi-Def” program. Under this program, IRS employees will contact high-income taxpayers to ask them about their unfiled tax returns. The program may reach further than you would expect. The Internal Revenue Manual defines “high-income non-filer” as any taxpayer who did not file a tax return and has a total income of at least $100,000. That means even middle-class professionals may have already begun receiving calls from the IRS about their missing tax returns.
Then, in July 2020, in response to the Tax Administration report, the IRS reported a second program, called “Surround Sound.” Guillot described this program as “a collaboration between collection, examination, and the Office of Fraud Enforcement.” It is designed to shift the focus from collecting perfected debts to pursuing cases with some hints of fraud that could trigger criminal tax consequences.
Now, Guillot says the agency is going back to 2016 and tracking down those high-income non-filers. Taxpayers who fit the income and filing criteria could receive mailed IRS notices, automated collections contacts, or even a call from a field revenue officer.
When asked what taxpayers should do in response to this shift in IRS priorities, Guillot’s answer was painfully straight forward: file your tax returns on time. He said even if high-income taxpayers can’t pay the full balance due, it will still be easier and less costly than filing late. Talking about taxpayers, Guillot said:
“If only they’d known how steep that failure-to-file penalty [or] that late-filing penalty is, they could’ve saved themselves quite a bit of money.”
The take-away is simple. If you make more than $100,000, work with an experienced tax preparer to get your tax returns filed by April 15 (or timely file an extension). If you can’t afford the entire balance, you can then apply for a short-term or long-term payment plan and avoid getting collections calls from the IRS.
Attorney Joseph R. Viola is a tax attorney in Philadelphia, Pennsylvania with over 30 years experience. If you have questions regarding IRS tax collection efforts or payment plan options, contact Joe Viola to schedule a free consultation.