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Representing High-Income Taxpayers Who Owe Delinquent Back Taxes

TIGTA identified 685,555 taxpayers who had a balance due as of May 14, 2019. These taxpayers reported adjusted gross income (AGI) of $200,000 or more and owed a combined total of $38.5 billion. Because the IRS prioritizes high balance due cases for collection, many of these high-income taxpayers would be included in high-priority work. However, balance dues are not prioritized by incomes earned and some improvements could be made to prioritize high-income taxpayers more effectively. A separate IRS analysis of 64,317 delinquent tax cases showed that the IRS collected less than 50 percent of tax debt owed by these high-income taxpayers within 52 weeks of assignment to Field Collection. The following chart shows that taxpayers having an average AGI of over $1.5 million paid the IRS an average of 39 percent of what they owe. While 39 percent is more than what the IRS predicted it would collect, these high-income taxpayers still owed over $2 billion.

Average AGI of Taxpayers in This Group Balance Due Actual Recovery Rate Remaining Balance Due $1,563,390 $4,009,955,107 39% $2,442,387,519 $98,289 $1,089,010,998 17% $906,586,760 $24,985 $1,157,135,371 12% $1,014,227,292

Get proper representation by power of attorney 1-877-788-2937.

When selecting cases to assign to a private collection agency, the IRS randomly selects cases that meet the Private Debt Collection criteria without regard to taxpayers’ ability to pay. TIGTA identified 3,185 high-income taxpayers  whose accounts were not sent to a private collection agency at any point since the program started in Fiscal Year 2017 and who owed $110 million on modules that were shelved in an inactive inventory as of May 14, 2019. TIGTA also found that revenue officer staffing does not always align with locations where the greatest number of high-income cases are located. While TIGTA recognizes that resources are limited, hiring or reallocating resources to work high-income cases in these areas could lead to higher collection potential and increased revenue. These taxpayers should seek representation help according to Mike Habib who represents taxpayers before all administrative levels of the IRS & Appeal.

TIGTA made seven recommendations to help the IRS improve the collection of taxpayer delinquent accounts of high-income taxpayers. IRS management agreed with two of the seven recommendations. The IRS plans to evaluate the recovery predictive models to consider additional income factors to improve the ability to predict recovery and plans to consider conducting ROCS that focus on high-income taxpayer TDA cases in locations where high-income taxpayer cases far outweigh the number of revenue officers assigned to those areas.

The intentional failure to pay Federal income tax is a crime. Taxpayers can be subject to penalties, fines, and imprisonment for nonpayment of income tax. In the past, the Internal Revenue Service (IRS) had focused on the tax compliance of high-income individuals because their noncompliance can have a significant corrosive effect on tax administration as well as add to the belief that the Nation’s tax system favors the wealthy.  Intentional nonpayment of income tax by those with significant financial resources and sophistication is a blatant form of noncompliance. The underpayment of income tax is also a substantial component of the Tax Gap. The gross Tax Gap is the estimated difference between the amount of tax that taxpayers should pay and the amount paid voluntarily and on time. The three-year average annual gross Tax Gap is estimated to be $441 billion for Tax Years (TY) 2011 through 2013, of which $50 billion (11 percent) is due to underpayment. Individual income tax accounts for $38 billion (76 percent) of the underpayment. Approximately $39 billion (9 percent) of the gross Tax Gap is due to nonfilers—taxpayers who do not timely file a required tax return and timely pay the tax due for such delinquent returns. The IRS’s principal compliance and enforcement efforts to close the Tax Gap consists of examinations (audits) and collection of delinquent taxes. The Treasury Inspector General for Tax Administration (TIGTA) recently completed an audit of the IRS’s new nonfiler strategy and its related plans to determine whether the IRS is effectively addressing high-income nonfilers. Because of this review, the IRS agreed to make changes to its nonfiler strategy and will issue delinquency notices to all high-income nonfilers identified by the Case Creation Nonfiler Identification Process to ensure that the cases enter into the inventory stream and that the cases are worked as resources allow. This audit focuses on high-income taxpayers with delinquent taxes. Cases with a balance due are processed in a variety of ways and have the potential to be worked in a variety of IRS Collection functions in order to collect unpaid tax liabilities or determine whether liabilities are uncollectible. The IRS first sends a series of balance due notices (commonly called the notice stream) to the taxpayer to prompt a payment by the taxpayer or a reply if the taxpayer disagrees with the balance due or is unable to pay the delinquency. Generally, balance due tax modules which are not resolved during the notice phase become taxpayer delinquent accounts (TDA) and are routed to one of several inventories or functions within the IRS’s Collection program.

These taxpayers should seek representation help according to Mike Habib who represents taxpayers before all administrative levels of the IRS & Appeal.

Get proper representation by power of attorney 1-877-788-2937.

  • Automated Collection System (ACS): The ACS uses a variety of systemic actions in an

attempt to prompt payment and bring delinquent taxpayers back into compliance.

These include but are not limited to systemic notice issuances and systemic enforcement

actions such as levies and Notice of Federal Tax Lien filings. This Collection function is

also characterized by telephone contact, primarily inbound calls from taxpayers that are

initiated through the use of the systemic notice issuances and enforcement actions.

  • Field Collection (Field): Field Collection contains an inventory of delinquent cases

assigned to revenue officers. They are characterized by taxpayer contact through

revenue officers who work one-on-one with taxpayers to bring them into compliance by

filing delinquent returns, paying past due tax delinquencies, or establishing payment

plans. When necessary, revenue officers take enforcement actions such as levies, Notice

of Federal Tax Lien filings, or seizures of property. The IRS assigns its highest priority and

most complex collection cases to the Field because those employees have unique skills

that enable them to work such cases; however, because they are labor intensive, the cost

associated with working these cases is higher than in other Collection functions.

  • Collection Queue (Queue): The Queue is an inventory of unassigned delinquent cases

waiting for assignment to a revenue officer or the ACS. IRS management considers the

Queue as potential inventory for any Collection function. Queue cases are systemically

reviewed after 52 weeks without being assigned to any Collection function. If after the

systemic review the cases are not assigned to a different Collection inventory or function,

the only action taken is an annual reminder notice sent to the taxpayer. In addition,

cases in the Queue do not undergo systemic actions (such as systemic searches for levy

sources), such as cases might within the ACS.

High-Income Taxpayers by Balance Due Range12 Balance Due Range Number of High-Income Taxpayers Percentage of High-Income Taxpayers Total Balance Due Percentage of Balance Due Less Than $1,000 138,025 20% $41,949,516 < 1% $1,000 to $9,999 197,845 29% $919,636,991 2% $10,000 to $24,999 134,257 20% $2,215,196,958 6% $25,000 to $49,999 98,263 14% $3,527,089,264 9% $50,000 to $74,999 32,732 5% $2,001,807,246 5% $75,000 to $89,999 13,209 2% $1,084,870,886 3% $90,000 to $99,999 7,219 1% $685,249,316 2% $100,000 and Up 64,005 9% $28,046,330,061 73% Totals 685,555 100% $38,522,130,239 100%

The majority (73 percent) of the tax dollars owed by these high-income taxpayers are from balances due of $100,000 or more, but this accounts for only for 9 percent of the taxpayers.

These taxpayers should seek representation help according to Mike Habib who represents taxpayers before all administrative levels of the IRS & Appeal.

Get proper representation by power of attorney 1-877-788-2937.

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