Data obtained exclusively by CNBC shows that tens of thousands of wealthy Americans are not filing tax returns despite the IRS reaching out to them. A federal tax law loophole allows wealthy individuals to avoid paying taxes by not filing returns, as it is only a misdemeanor offense. Limited resources at the IRS and Department of Justice have made it challenging to pursue non-filers, leading to a lack of consequences for millionaires who choose not to file.
In early 2024, the IRS began targeting high-income non-filers who had not filed returns since 2017, sending notices to approximately 125,000 cases. Renewed efforts to identify non-filers resulted in nearly 26,000 filing returns, bringing in an additional $292 million in tax revenue.
Despite the success in getting some non-filers to comply, data shows that only a fraction of the wealthiest non-filers have filed returns, with many individuals earning over $1 million remaining non-compliant. The IRS has acknowledged limited enforcement due to resources being used for felony investigations. The Treasury Department has proposed reclassifying non-filing offenses as felonies, increasing penalties for those who repeatedly fail to file tax returns.
Wealthy individuals who do not pay taxes shift the financial burden to other taxpayers, contributing to a significant tax gap. Increasing criminal penalties for high-income non-filers is seen as a way to deter tax evasion and encourage compliance, ultimately helping to close the tax gap and ensure fair tax collection.
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