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Thousands of millionaires haven’t filed taxes in years, IRS says

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Thousands of high-income people haven’t filed taxes in several years, but the cash-strapped Internal Revenue Service has done nothing to get them to pay what they owe.

That’s changing now, the tax agency announced Thursday. The IRS will send notifications to thousands of people who earned more than $400,000 and didn’t file a return for at least one year between 2017 and 2022, the first step in collecting any tax owed.

About 25,000 cases involve people with incomes greater than $1 million, IRS Commissioner Danny Werfel said. About 100,000 cases come from people with income between $400,000 and $1 million, as reported to the IRS by their employers and banks.

Although the IRS will send out 125,000 notices, the actual number of taxpayers involved may be lower because many have not filed their returns for several years.

If they do not file within about two months of receiving the letters, the IRS may take other actions, including possibly filing a “substitute” tax return in the person’s name and then withholding money in their paycheck or bank account to collect taxes owed. .

“When people don’t file their taxes, they need to know there are consequences,” Werfel said.

Failing to file within a year can lead to a snowball effect, one attorney said. “They forget one year, then the next year they say, ‘Well, if I file now, I’ll be in trouble for the year before’… Very quickly, 15 or 20 years later, they find themselves in a difficult situation. Much worse problems,” said Rob Kovacev, a former Justice Department lawyer who said that more than 15 years ago, before the IRS budget cuts, his file was filled with records of non- filers, some involving very wealthy people.

As Congress has cut funding for the IRS over the past decade, the agency’s dwindling staff has done less to enforce tax compliance – including one of the most basic tasks, consisting simply of sending letters to people who do not file their tax returns. Werfel said the “non-filers program” last operated in 2016, with only sporadic attempts since then to contact non-filers.

He described this gap as “one of the clearest examples of the need to have a properly funded IRS.” In 2022, Congress gave the agency an additional $80 billion over 10 years, although congressional Republicans later clawed back $20 billion. The agency went on a hiring spree last year, which Werfel said gives the IRS enough workers to contact non-filers and process returns once they are filed, or pursue additional measures against those who fail to report.

Werfel said the returns represent hundreds of millions of dollars in unpaid taxes, on more than $100 billion in revenue.

Among the 125,000 missing declarations, few will give rise to criminal cases of tax evasion.

Thursday’s announcement reflects the Biden administration’s decision to focus tax compliance efforts on high-income earners. The administration said it would not increase audit rates for taxpayers who earn less than $400,000 a year.

Eventually, the IRS said, it will send letters to non-filers, regardless of their income level. Letters to people earning less than $400,000 will emphasize that they may not receive a refund. More than 1 million households each year miss out on credits they are eligible for, such as the Earned Income Credit, because they did not file a tax return, the IRS said.

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