IRS increasing compliance visits for HNW clients, businesses
There’s a new incentive for clients to file a tax return this year: An IRS agent may be making a house call if they don’t.
The IRS is increasing efforts to reach high-income individuals who have failed to file at least one or more tax returns in recent years as a last-ditch attempt to encourage compliance, the agency said on Wednesday. This would be the final step before the agency would pursue more severe procedures, including civil or criminal action against that individual, the IRS said.
The agency will send several dozens agents to make at least 800 face-to-face visits in February and March of this year, Hank Kea, who directs the IRS field collections operations, said Thursday. The IRS will be identifying other non-compliant individuals throughout the year and adding cases as they find them, he said.
“Enforcement truly is our last resort,” Kea said. “Don’t delay filing or worse yet avoid filing all together.”
The IRS is concentrating efforts on individuals who received at least $100,000 in income during a year and didn’t file tax returns. The agency knows the incomes of many taxpayers from third-party reporting from employers or financial institutions, even if they don’t file a return.
The agency will focus on the most egregious cases first, Kea said, such as individuals contacted by the agency multiple times via mail with no response.
“The IRS is committed to fairness in the tax system, and we want to remind people across all income categories that they need to file their taxes,” Paul Mamo, the IRS’s director of collection operations, said in a statement. “We want to ensure taxpayers know their options to get right with their taxes and avoid bigger issues later.”
The goal of these visits is to educate taxpayers about their filing requirements and try to bring them into compliance without taking stronger enforcement actions against the individual, Mamo said.
The agency will have several precautions in place to assure taxpayers that a home visit isn’t a scam. The IRS employee will provide two forms of official credentials, including a serial number and a photo ID. IRS employees will also not make threats nor demand an unusual form of payment, such as a gift card.
All taxpayers met in person will also have also been contacted multiple times by the IRS, so they should know they have a tax issue, the agency said. However, the timing of most visits will be unannounced.
The increased efforts to reach non-compliant people comes as the agency has come under criticism from its watchdog, the Treasury Inspector General for Tax Administration, and outside groups that say the agency isn’t effectively auditing corporations and high-income individuals with complicated returns. IRS Commissioner Chuck Rettig has said he is focusing on improving enforcement — in both criminal and civil cases — and has asked Congress for more money to staff these efforts.
In the past decade, the number of income tax returns increased by about 9%, but the IRS’s funding and number of employees both declined by more than 20%, according to a January report from the Taxpayer Advocate Service, an independent government office.
The report also found that some taxpayers who are audited or face adverse action from the IRS often cannot reach the agency to resolve the situation. The IRS received 15 million calls on its automated telephone lines in fiscal year 2019. Employees were able to answer only about 31% of those calls, and taxpayers who got through waited on hold for an average of 38 minutes, the Taxpayer Advocate said.
Some tax professionals worry that fewer employees at the agency mean that more taxpayers will try to cheat on their returns. Individuals face a 0.45% chance of being audited, while businesses are audited at a rate of 1.6%, some of the lowest audit figures on record, according to the IRS’s annual report, released in January.
Individual income taxes are the largest group of uncollected taxes before audits, representing about $314 billion, according to agency statistics on the tax gap.