High Income Non-Filers Beware – Audits Are Coming

By:  Heather L. Marello and Kevin M. Murphy

During a recent web conference, IRS Large Business and International Division Commissioner Douglas O’Donnell warned that IRS is gearing up to initiate hundreds of non-filer audits against high income individuals and those with related flow-through entities.

The original announcement of this initiative came in July, 2019, when LB&I added high income non-filers to its list of active compliance campaigns. Then, in February of this year, the IRS announced a new program where 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. These visits are primarily aimed at informing these taxpayers of their tax filing and paying obligations and bringing them into compliance. (IR-2020-34, 2/19/20). However, this initiative coincides with the IRS seeming to make a recent push to commit to greater civil and criminal fraud enforcement as the new director of the Small Business/Self-Employed Division (SB/SE) was a former Deputy Chief of Criminal Investigations, and another former CI official was named as the new fraud enforcement director of SB/SE. To support these initiatives, the IRS is embracing data analytics and even artificial intelligence so that they can more effectively mine data to uncover delinquent filers and fraudulent activity. The good news for some delinquent taxpayers is that the campaign was halted after the People First Initiative was enacted in response to COVID-19, which stalled much of the examination and collection functions of IRS between April 1 and July 15, 2020.

While those functions remain stayed, the Treasury Inspector General for Tax Administration (TIGTA) issued a report on May 29, 2020 titled “High-Income Non-filers Owing Billions of Dollars Are Not Being Worked by the Internal Revenue Service.”  The report admonishes the IRS for its lack of enforcement action and estimates that, of the 879,415 high-income non-filers identified, IRS did not examine 326,579 of those cases, leaving an approximate $20.8 billion in unassessed tax for the 2014-2016 taxable years.  In response, IRS has renewed its commitment to pursue high-income non-filers through examinations and collection enforcement, and warned that it has already identified over 1,000 cases that it expects to audit in the upcoming months.

These current IRS actions make it imperative that delinquent non-filers do their best to file back returns as soon as they can. Non-filers may face a host of civil penalties, including failure to file, failure to pay, failure to pay estimated tax, and potentially civil fraud penalties.  With interest, these penalties can easily double or exceed a tax liability over time.  In addition to civil remedies, high-income non-filers who have unfiled returns for a number of years or who are living a life of luxury at the expense of the government have an increased likelihood of referral to Criminal Investigation Division for criminal enforcement action.

Andreozzi Bluestein has extensive experience representing non-filers in domestic and offshore disclosures to IRS and New York State, assisting taxpayers in civil non-filer examinations and criminal non-filer investigations, and working with clients to mitigate penalties and resolve any balances shown to be due on those returns. If you or a client have unfiled returns, please call us at any time for a no-obligation consultation.

Disclaimer

This communication is for general informational purposes only which may or may not reflect the most current developments. It is not intended to constitute legal advice or a recommended course of action in any given situation. This communication is not intended to be, and should not be, relied upon by the recipient in making decision of a legal nature with respect to the issues discussed herein. The recipient is encouraged to consult an independent licensed attorney before making any decision or taking any action concerning the matters in this communication. This communication does not create an attorney-client relationship between Andreozzi Bluestein LLP and the recipient.

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