INTERNAL REVENUE SERVICE ZEROES IN ON RICH TAX CHEATS
Internal Revenue Service Zeroes In On Rich Tax Cheats
The U.S. Internal Revenue Service has promised more scrutiny on wealthy tax delinquents and non-filers. Is the agency following through?
The U.S. Internal Revenue Service is zeroing in on wealthy taxpayers who either hold big tax debt or who haven’t filed an American tax return in years. This could include many American taxpayers who are wealthy enough to have substantial overseas holdings and foreign investors subject to U.S. taxes.
Fueled by funding from the U.S. Inflation Reduction Act of 2022, the U.S. agency has also sent compliance letters to tens of thousands of cases where tax returns haven’t been filed since 2017. Many of the notices went to taxpayers worth more than $1 million in income and many more went to people with incomes of $400,000 to $1 million.
The tax-debt initiative brought in more than $1 billion in less than a year, the IRS has claimed. The effort involved dozens of IRS employees reaching out to 1,600 taxpayers who had more than $1 million in income and owed more than $250,000 in taxes.
‘Basic civic duty’
The IRS has long labored under a funding shortage, which in turn produced a shortage of personnel and technology to pursue wealthy – and often litigiously savvy – tax cheats. The new effort is hailed by supporters as a way for the rich to pay more of their fair share and a way for the IRS to prove it no longer just goes after taxpayer who can’t afford a good lawyer.
“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,” IRS Commissioner Danny Werfel has said. “Too often during the past decade, the IRS didn’t have the resources to pursue high-income taxpayers to follow up with these people – even though their tax bill wasn’t in dispute … Past-due taxes from high-income taxpayers are no longer being left on the table.”
Non-filers have been an increasing problem for the IRS, which typically relies on third-party information, including IRS Forms W-2 and 1099, to target taxpayers with certain income but who did not file. The IRS said it has been mailing some 30,000 compliance alerts a week for failure to file a tax return, starting with filers in the highest-income categories.
The IRS says it will continue this effort as long as funding flows. “Investments in enforcement technology and data, if sustained, will result in $851 billion in additional revenue over the next decade,” U.S. Treasury Secretary Janet Yellen has said.
How much income is ‘high?’
The IRS effort has hit a few bumps. For example, the agency ditched a U.S. government directive to audit 8% of individuals making more than $10 million and instead focused on high-income taxpayers making more than $400,000. One reason: The Treasury Inspector General for Tax Administration?reported that a relatively high percentage of post-directive audits produced no change in the status of a taxpayer’s liability.
The inspector general also found in one recent year that 63% of audits focused on those who earn less than $200,000 a year – an annual income once IRS determined was “high” and hadn’t updated since 2006.
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What to do
If you receive any dunning notice from the IRS, don’t take it lightly. Ignoring these communications can easily lead to penalties, interest and worse. The failure-to-file penalty?amounts to 5% of the amount owed every month, up to a quarter of the tax bill.
Worse still, if you repeatedly fail to respond to notices and still don’t file, the IRS might create a substitute tax return for you – which even the agency admits will “likely” lead to a further tax bill, collection proceedings and a possible lien or criminal proceedings. (You will have a few months to counter by filing the past due tax return or petitioning the U.S. Tax Court.
IRS funding and future enforcement initiatives depend greatly on the outcome of the American elections in November. For now, the agency clearly is taking a sharp interest in wealthy taxpayers.
Foreign investors and Americans with significant overseas holdings should be ready for renewed attention from tax authorities. Reach out to us at the first sign of trouble with the IRS.
Your tax specialist needs to stay on top of this and many other issues of wealth, foreign income and tax enforcement. If we can help, please let us know.
About the Author?
Alicea Castellanos is the CEO and Founder of Global Taxes LLC. Alicea provides personalized U.S. tax advisory and compliance services to high-net-worth families and their advisors.
Alicea has more than 20 years of experience. Prior to forming Global Taxes, Alicea founded and oversaw operations at a boutique tax firm, worked at a prestigious global law firm and CPA firm.
Alicea specializes in U.S. tax planning and compliance for non-U.S. families with global wealth and asset protection structures which include non-U.S. trusts, estates and foundations that have a U.S. connection.
Alicea also specializes in foreign investment in U.S. real estate property, and other U.S. assets, pre-immigration tax planning, U.S. expatriation matters, U.S. persons in receipt of foreign gifts and inheritances, foreign accounts and assets compliance, offshore voluntary disclosures/tax amnesties, FATCA registration, and foreign companies wanting to do business in the U.S.
Alicea is fluent in Spanish and has a working knowledge of Portuguese.
Alicea is an active member of the Society of Trusts & Estates Practitioners (STEP), the New York State Society of Certified Public Accountants (NYSSCPAs), the American Institute of Certified Public Accountants (AICPA), the International Fiscal Association (IFA), a member of Clarkson Hyde Global, a world-wide association of accountants, auditors, tax specialists and business advisors and the Global Referral Network (GRN).
Distinctly, in 2020, Alicea was awarded with a prestigious NYSSCPA?Forty?Under 40 Award.?She was selected as someone that has notable skills and is visibly making a difference in the accounting profession.
In 2021 and 2022, Alicea was the Gold and Silver Winner, respectively, of Citywealth's Powerwomen Awards in the category USA - Woman of the Year - Business Growth (Boutique). In 2023, she continued her winning streak by receiving the Gold award for Company of the Year Female Leadership (Boutique) and the Silver award for Accountancy Firm of the Year at the Magic Circle Awards. Furthermore, Alicea has consistently secured her position in the Global Elite Directory for four consecutive years, being recognized as a Private Client Global Elite Advisor and is currently listed for 2024 as a Non-Legal Adviser. This exclusive directory annually highlights the world's elite lawyers and outstanding wealth advisors serving ultra-high net-worth clients.
Please note: This content is intended for informational purposes only and is not a replacement for professional accounting or tax preparatory services. Consult your own accounting, tax, and legal professionals for advice related to your individual situation. Any copy or reproduction of our presentation is expressly prohibited. Any names or situations have been made up for illustrative purposes — any similarities found in real life are purely coincidental.?