The IRS has been ignoring high-income taxpayers who owe billions of dollars and its watchdog group is pressing them to go after them. Approximately 1.9 nonfilers for 2012-2013, who have expired extensions, still owe an estimated $7.4 billion according to the Treasury Inspector General for Tax Administration Audit. (TIGTA)
However, they are not faulting the IRS, as much as Congress, who have cut the agency’s budget. Reduced funding has subjected compliant taxpayers to mediocre service and has made it harder for the IRS to pursue delinquent taxpayers.
Nonfilers account for at least $26 billion of the $458 billion estimated tax gap. In the course of a year, the IRS will typically send delinquency notifications to approximately 7 million nonfilers. But the TIGTA has found that programming errors, bad management decisions, and lack of resources have contributed Treasury losses. In 2012 and 2013 the IRS collected $433 million and $290 million compared to $4.3 billion and $3.6 billion for 2010 and 2011.
Nonfilers are tracked by third party reporting such as 1099 Misc, (self-employment) and 1099-B (stocks) forms. They also look at taxpayers who have filed in the past but failed to later on.
In 2012, programming errors overlooked nonfilers with expired extensions and at least ½ were not identified. Most had high incomes and owed significant amounts in taxes. The nonfiler program is standalone so it is unlikely, those nonfilers will be reassessed.
The IRS fixed most of the program errors they found in 2013. However, because of funding cuts, the agency stopped sending out notifications to delinquent taxpayers and established installment agreements. The TIGTA took issue with this because the agency is required to issue notifications regardless of balance due. They are saying that notifications would have brought in at least $3.8 billion in collections and is recommending that the IRS reinstate it. The IRS agreed to review 127,000 high priority cases but still only expects $2.7 billion in collections.
Kevin E. Thompson says “personally, I think it’s great they keep reducing the IRS budget and demand more from less. This IRS will continue to struggle and this means less and less impact on the US taxpayers.” There are many implications to a lowly-funded IRS and one of them is fewer audits. This is good for the US Taxpayers who fear examinations. “Professionally, I think it time the IRS enters into a Public-Private partnership with tax preparers (TP). These TP’s would be well-trained and can resolve many of the IRS issues with taxpayers quickly and more economically than the IRS can. Look for my book this summer on this topic.”
Contact Kevin Thompson CPA
email@example.com or call him @ (310) 450-4625 x102