High Income Non-Filers Are Back in Sights of the New Enforcement Minded IRS – by STEVEN TOSCHER and GARY MARKARIAN
On February 19, 2020, the IRS issued IR-2020-34, which states the IRS “will step up efforts to visit high-income taxpayers who in prior years have failed to timely file one or more of their tax returns.” If the Commissioner of Internal Revenue Charles P. Rettig was speaking, he might say that high income taxpayers who have failed to file their federal tax returns should not complain –they have been given fair warning.
In September of 2019, Eric Hylton, the former deputy chief of IRS Criminal Investigation Division, became the SBSE Commissioner. He recently announced that SBSE would use data analytics to identify high-income non-filers. This data analytics also can be used to identify tax preparers who promote false tax returns, as well as businesses with large amounts of unpaid employment taxes.
Hylton’s goal is to integrate CI division analytics to his new role in SBSE, and he hopes data analysts from CI can work with Revenue Agents and Revenue Officers to develop new techniques that SBSE will use in its enforcement.
In Fiscal Year 2018, the IRS identified 73.4 million taxpayers that failed to file a tax return, including 10.6 million individuals and 62.8 million businesses. For Tax Year 2016, the most recent year estimated by the IRS, delinquencies associated with non-filers were approximately $37.5 billion, fertile ground for the deployment of tax resources and that is what the recent announcement is about: “IRS revenue officers across the country will increase face-to-face visits with high-income taxpayers who haven’t filed tax returns in 2018 or previous years.”
Failure to file tax returns can have severe consequences. IRC § 6651(a)(1) imposes substantial additions to tax for a failure to file a tax return. Moreover, fraud referrals from the IRS Collection Division have been increasing. There are potential criminal consequences as well: IRC § 7203 makes it a misdemeanor to failure to file; if convicted, a taxpayer can be fined up to $25,000 ($100,000 for corporations) in fines and up to 1 year in prison. Under IRC §7201, a willful failure to file, combined with affirmative acts of evasion, could lead to a potential felony conviction for tax evasion, which can result in up to 5 years in prison.
Taxpayers who have failed to file a tax return should immediately consider taking advantage of the IRS’s Voluntary Disclosure practice. Taxpayers who qualify have the opportunity to cooperate with the IRS to get into tax compliance while avoiding criminal investigation and prosecution for the failure to file a tax return.
The IRS announcement indicates that Revenue Officers will be visiting high-income non-filers who generally received income in excess of $100,000 during the tax year—and do not be surprised—Revenue Officer visits are usually unannounced. Ask for identification and treat them with professional courtesy and respect, but also immediately contact a competent tax professional. It’s a serious matter.
Steven Toscher is the Managing Principal of Hochman Salkin Toscher Perez P.C., where he has been specializing in civil and criminal tax litigation for more than 30 years. He is former Trial Attorney with the Tax Division of the U.S. Department of Justice.
Gary Markarian is an associate at Hochman Salkin Toscher Perez P.C., and a recent graduate of the joint JD/LL.M. Taxation program at Loyola Law School, Los Angeles.
 Trends in Compliance Activities Through Fiscal Year 2018, Reference Number: 2019-30-063 (September 9, 2019)