The Treasury Inspector General for Tax Administration (TIGTA) points out that the Internal Revenue Service (IRS) has not done a great job pursuing nonfilers with extremely high income.
A recent TIGTA audit report revealed that the IRS failed to identify and contact 1.9 million people in tax years 2012 and 2013 who owed approximately $7.4 billion dollars, with expired extensions as of May 2016.
With the problem getting out of hand, tax lawyers believe right now could be the perfect time to dodge taxes. One tax lawyer in particular blames congress, rather than the IRS. He believes that congress “continues to empower and enable noncompliant taxpayers by cutting the budget.” This leads to the IRS having less resources to pursue known noncompliant taxpayers, while 81% of Americans who are compliant are receiving less and less service.
Taxpayers who don’t file their tax returns, or fail to pay on time, account for $26 billion of the estimated $458 billion tax gap. Every year, the IRS usually sends more than 7 million taxpayers delinquency notices in effort to collect backtaxes.
According to the TIGTA report, programming errors, managerial decisions, and resource constraints led to the IRS’ shortcomings. In 2012, the programming errors that occurred allowed high income nonfilers who had expired extensions to be overlooked. High income individuals have a higher filing rate and higher tax dollars collected per return when delinquencies are paid. Overlooking these high-income taxpayers takes out a huge chunk of revenue.
Although they addressed the resource constraints, TIGTA expressed these IRS problems as “concerning.”
It is evident that the IRS has major improvements to make going forward. It will also be interesting to see if congress gives the IRS the resources required to efficiently follow through with sending notices and creating programs to target wealthy nonfilers.