In February 2020, the IRS announced that it would step up efforts to contact high-income taxpayers (defined as earning $100,000 or more per year), who in prior years have failed to file one or more tax returns. The IRS’s enforcement effort in 2020 was announced, in part, in reaction to a 2018 GAO study that showed a 40% decline in non-filer investigations since 2010. Indeed, by 2018, non-filer investigations declined to .8 million for individuals and .4 million for businesses. The decline in IRS non-filer investigations was a result of reduced IRS resources and funding.
The IRS’s 2020 Non-Filer Enforcement Initiative promised some of the following strategies to catch non-filing high net worth individuals and non-compliant businesses:
- Increase the identification and case creation for individual and business non-filers. New cases would be assigned to IRS employees for appropriate resolution.
- Automated Substitute for Return program (ASFR). Affected individual taxpayers who have not filed tax returns, but whose available income information shared with the IRS indicated a significant income tax liability, would see ASFR’s filed by the IRS. As part of the ASFR program, the IRS would send notices to these taxpayers alerting them to the potential liability.
- Campus Automated 6020(b) program. The campus automated 6020 (b) program was designed to promote employment tax filing compliance by identifying business taxpayers with employment tax requirements who have not filed for a specific period. The IRS intended to ensure businesses complied with their employment tax filing and payment requirements as part of an ongoing audit priority for the IRS.
- Delinquent Return Refund Hold program (DRRH). As a matter of course, the IRS would hold an individual taxpayer’s income tax refund when their account has at least one unfiled tax return within 5 years of the filed return.
Almost a year later, and as a result of the IRS’s efforts, tax practitioners are seeing an increase in non-filer inquiries. High net worth non-filer taxpayers and businesses who had gone undetected for years are suddenly finding themselves owing significant tax, penalties and, in some cases, facing criminal prosecutions.
Read the full GT Alert The IRS Announced a New Non-Filer Initiative Over a Year Ago – Now We See the Enforcement.