To improve tax compliance and ensure fairness, the Internal Revenue Service (IRS) is going after 125,000 people who earned over $400,000 annually but did not file tax returns between 2017 and 2021.
Starting this week, 25,000 people with earnings above $1 million will get a non-compliance letter, while 100,000 others earning between $400,000 and $1 million will also receive the same notice, according to The New York Post.
IRS Says 'Take Immediate Action' to Avoid Higher Penalties
In a press release, the IRS said "third-party information," like via Forms W-2 and 1099s, helped the agency identify these wealthy tax evaders.
The agency advised those who will receive a letter to "take immediate action to avoid additional follow-up notices, higher penalties as well as increasingly stronger enforcement measures."
The IRS noted that the failure-to-file penalty usually amounts to 5% of the tax owed for each month, up to a maximum of 25%. The agency said that around 20,000 to 40,000 letters will be sent each week, starting with the "filers in the highest-income categories."
Tax Evasion in the US
The IRS said that "severe budget and staff limitations" prevented the agency's non-filer program from running smoothly since 2016. However, the 2022 Inflation Reduction Act that provided $80 billion in additional funding to the IRS now allows the agency to do "this core tax administration work."
"The IRS is taking this step to address this most basic form of non-compliance, which includes many who are engaged in tax evasion. This is one of the clearest examples of the need to have a properly funded IRS," IRS Commissioner Danny Werfel said in the release.
"With the Inflation Reduction Act resources, the agency finally has the funding to identify non-filers, ensure they meet this core civic responsibility, and ultimately help ensure fairness for everyone who plays by the rules," he added.
The initiative was reportedly part of Treasury Secretary Janet Yellen's order to the IRS not to raise audit rates on people earning less than $400,000 annually.
"At this time of year when millions of hard-working people are doing the right thing paying their taxes, we cannot tolerate those with higher incomes failing to do a basic civic duty of filing a tax return," Werfel noted.
"If someone hasn't filed a tax return for previous years, this is the time to review their situation and make it right... For those who owe, the risk will just grow over time as will the potential for penalties and interest," he added.
The IRS warned that a taxpayer who fails to respond to notices and repeatedly does not file a tax return could face more enforcement measures, like additional penalties and criminal prosecution.
Tax evasion in the US is a felony criminal offense with a prison sentence of up to five years. Some states, like California, even slap offenders with up to $20,000 fines.
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