The IRS is a big, complicated organization, and sometimes things slip through the cracks. At the Law Offices of Rod Polston, we watch for any mistakes the IRS has made and any actions they plan to take to resolve them, just in case it affects any of our clients. Between 2012 and 2013, the IRS failed to identify approximately 1.9 million non-filers. That amounts to a gigantic tax gap: an estimated $7.4 billion in owed taxes (as of this year). So in today's blog, we're asking: How did this happen, and what comes next?
How It Happened:
In short: A programming error.
The IRS has a standing strategy in place to identify delinquent taxpayers, called the Case Creation Non-filer Identification Program. As far as individuals are concerned, the CCNIP identifies those who have filed previously but failed to file for the current year, and through third-party channels that feed taxpayer information to the IRS, usually through W2s or 1099s.
Unfortunately, there was a programming error in the system, that the "IRS did not completely investigate or fix in a timely way". So the IRS canceled this process in 2013 for any taxpayers that didn't file or whose extensions ran out. And because this process is standalone from year to year, said taxpayers never even received any notification of their delinquency.
This especially applies to high-income non-filers, whom the IRS considers to be a "high compliance risk", and major contributors to the tax gap.
What Comes Next:
The IRS changed its non-filer strategy in February of 2014, in an effort to increase compliance. But, as of July of 2016, the IRS still has not implemented any of the proposed initiatives.
The Treasury Inspector General for Tax Administration (TIGTA), an independent IRS oversight organization, made an investigation of the IRS's current system. Suggestions have been made in regards to various collection and information technologies, and the IRS has agreed with each of TIGTA's recommendations. Karen Schiller, the commissioner of the IRS's Small Business/Self-Employed Division, stated the IRS would use TIGTA's "findings and recommendations, coupled with data analytics research that we plan to undertake, to help refine our Non-filer Program strategy".
If you have any questions regarding letters of delinquency, or if you're just looking for up-to-date and straightforward news about the IRS, reach out to us at Polston. Be sure to browse our services page and fill out the form for a free consultation. Or give us a call at 844-841-9857!