Currently, there are more than 10 million taxpayers0 who haven’t filed their tax returns (non-filers) in the United States. For 2020, the Internal Revenue Service (IRS) Commissioner Rettig intended to ramp up the enforcement for the collection process targeting IRS non-filers, and due to the IRS budget increase, the collection process became fully armed to enforce more than ever. The IRS newly hired 10,000 agents last year and is planning to hire another 5,000 this year1.
Upon the new hiring spree, the IRS was significantly increasing in-person visits to notify non-filers of their obligations and to promote compliance. Although the emergence of COVID-19 caused the IRS to suddenly put a halt on most collection activities, including planned visits, it will certainly resume the operations upon the tax deadline of July 15th. However, regardless of the pandemic, the IRS has been continuously pursuing and investigating non-filers who earned more than $100,000 during a tax year and have an unfiled return for 2018 or prior years.
Despite the slowdown in most collection processes, this government agency is still actively pursuing the areas of noncompliance. In February 2020, the IRS announced that it would pay special attention to those who haven’t filed tax returns in order to increase compliance and enforce the law. Pursuing non-filers is one of the IRS’s most efficient enforcement strategies because issuing non-filer notices can be a cost-effective tool that requires little more than automated notices. Therefore, it is not wise to wait until the tax deadline hits in July, because that’s when the IRS collection activities will surge.
So how does the IRS go about finding non-filers? Currently, it is utilizing various new technologies to improve or replace existing systems that involve research, data analytics, and new compliance strategies. It is employing technologically advanced tools, such as the Taxpayer Noncompliance Indicators, which is a graph database environment where IRS agents can visualize and understand the relationship between tax entities, like businesses, individuals, tax return preparers, and more. This tool aids in efficiently pinpointing indicators of taxpayer noncompliance and investigating non-filers.
Recently, the IRS implemented some new major programs. First, the Automated Substitute for Return Program (ASFR) 2 allows the government agency to notify the individual taxpayers of a potential liability they might be responsible for, where the liability amount is calculated based on their income statement information if it is shared with the IRS. Second, the Automated 6020(b) 2 process, identifies business taxpayers with employed tax requirements that have unfiled tax returns for a specific period. Third, the Delinquent Return Refund Hold Program (DRRH) 2, will allow the IRS to hold back individual taxpayer’s income tax returns if the taxpayer has unfiled tax returns within the five years. These programs allow the IRS to rapidly increase identification and case creation of individual/business non-filers and ultimately encourage non-filers to reach compliance on their own.
Despite the advanced course of action that the IRS has taken to track and investigate millions of non-filers, there is another reason for individuals to resolve their delinquent tax problems: the IRS actually owes “refunds” to numerous non-filers. More than 1 million households who haven't filed tax returns in the last three years are eligible for refunds. However, the deadline to receive refunds on 2016 tax returns is fast approaching, as the deadline is on July 15th, 2020.
Taxpayers, therefore, are highly encouraged to file delinquent tax returns before the deadline in July, as the IRS agents will be actively pursuing its collection activities and investigate non-filers and the eligibility for possible refunds by the IRS will have disappeared.
In a later article, I will discuss how to come to tax compliance and different ways to solve tax debt problems.
James Cha is a CPA and Certified Tax Resolution Specialist at Ace Plus Tax Resolution, providing solutions to taxpayers with IRS and state tax problems.
If you have any questions, contact us at James@AcePlusTaxResolution.com. If you or someone you know needs help with tax debt problems, contact us or visit our website at https://AcePlusTaxResolution.com/.
