The Internal Revenue Service has found that tens of thousands of wealthy Americans are not complying with recent efforts to get them to file tax returns. A quirk in tax law has incentivized some wealthy individuals to avoid paying taxes by simply not filing returns. Due to resource limitations, it is unlikely that those who do not file returns will face prosecution compared to those who file false returns, which is considered a felony. In early 2024, the IRS began contacting high-income non-filers and urging them to file returns.
Notices were sent to 125,000 wealthy taxpayers who had not filed returns since 2017, resulting in the filing of returns by nearly 26,000 taxpayers and the collection of over $292 million in taxes. Despite increased resources, only 5,460 of the highest-income non-filers with more than $1 million in suspected income had filed returns as of August. The IRS and Department of Justice have limited resources to pursue misdemeanor violations, resulting in a low likelihood of prosecution for non-filers.
Treasury has proposed reclassifying misdemeanor offenses of chronic non-filers as felonies, increasing penalties for those who willfully fail to file timely tax returns. This proposal aims to deter tax evasion by wealthy individuals and encourage compliance to close the tax gap caused by non-payment of taxes by high-income taxpayers.
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