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Democrats and Republicans are demanding answers from the Treasury Department and the Internal Revenue Service (IRS) on the heels of a report by the Treasury Inspector General for Tax Administration (TIGTA). The report, released last week, identified 879,415 high income nonfilers, defined by the IRS as those with income of at least $100,000 who have not filed tax returns, who have an estimated tax bill of $45.7 billion for tax years 2014 through 2016.
Brazen Non-Compliance With US Tax Law
In its report, TIGTA flagged:
- 369,180 high-income nonfilers, with estimated taxes due of $20.8 billion, whose cases the IRS did not even work
- Of the 369,180 high-income nonfilers, 326,579 were not placed in queue to be selected for work and the remaining 42,601 were simply closed out without being worked.
- 510,235 remaining high-income nonfilers, who had an estimated tax bill of $24.9 billion due, were not likely to be pursued by the IRS’ Collection function because of a reduction in resources.
- An opportunity to target repeat high-income nonfilers offenders by revising the IRS policy of only working on single tax year cases “without regard to how many returns have not been filed by a taxpayer.”
“Intentional nonfiling of tax returns by those with significant financial resources and sophistication is a brazen form of noncompliance,” TIGTA noted in its report. “The nonfiling of tax returns is also a substantial component of the Tax Gap,”
Bipartisan Congressional Fury
On the same day as TIGTA’s report was released, Ways and Means Committee Chairman Richard E. Neal (D-MA) sent a letter to Treasury Secretary Steven Mnuchin expressing concern over the lack of tax fairness that had been identified. “As the IRS has admitted, it is more difficult and costly to examine the complex returns of a high-income taxpayer than a simple Form 1040 of a low-income taxpayer,” Neal wrote. “As a result, low-income taxpayers are audited at a disproportionately higher rate. This is unfair.” Neal requested that Mnuchin share an approach, along with resource plans, to address the high income nonfiler fiasco by June 15, 2020.
Senator Charles Grassley (R-IA), who chairs the Senate Finance Committee as well as the Joint Committee on Taxation, was similarly dumbfounded by TIGTA’s report. In a letter to IRS Commissioner Chuck Rettig, Grassley inquired why the agency failed to audit high income nonfilers and what principles it used to determining whether or not to pursue a nonfiler. “I would like to understand how the IRS was aware of so many instances of taxpayer noncompliance without ever having attempted to collect from such taxpayers, or even prepared substitute returns for them based on the information received by the IRS alerting it to such noncompliance,” Grassley said. “No one at any income level should ever think they are safe in cheating on their taxes.”
IRS Has Been Gutted
The IRS has been hampered by a sustained campaign to decrease its operating budget, which has left it understaffed and unable to update critical technology infrastructure. “Had the billions in budget reductions occurred all at once, with tens of thousands of auditors, collectors and customer service representatives streaming out of government buildings in a single day, the collapse of the IRS might have gotten more attention,” a 2018 investigative report by ProPublica found. “But there have been no mass layoffs or dramatic announcements. Instead, it’s taken eight years to bring the agency that funds the government this low. Over time, the IRS has slowly transformed, one employee departure at a time.”
As of 2017, the IRS had a third fewer auditors than in 2010; the auditor count in 2017, 9,510 was the first time since 1953 that the IRS had fewer than 10,000 revenue agents. Fewer auditors means fewer audits. ProPublica cites a precipitous audit rate decline of 42 percent between 2010 and 2017, with the IRS conducting 675,000 fewer audits.
Senator Ron Wyden (D-OR) has long been critical of Republican efforts to gut the IRS. “Republicans in 2011 launched an all-out assault on the IRS. The result is crippled enforcement and an open invitation to the wealthy to cheat,” he said in a statement last year. He was equally critical in response to TIGTA’s findings, remarking how depriving the IRS of resources has lead to unencumbered wealthy tax cheats.
“Investments in health care, infrastructure and education will be perpetually short-changed if paying taxes is essentially voluntary for those at the top,” he noted in a statement. “The IRS needs historic investments to address this crisis.”
During an economic crisis when every dollar counts, going after wealthy nonfilers seems like an easy decisions. Perhaps Congress should include IRS funding in the next round coronavirus relief bill?
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