"At this time of year 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 said in the announcement. "The IRS is taking this step to address this most basic form of non-compliance, which includes many who are engaged in tax evasion."
"Funding the IRS to track down wealthy tax cheats pays off big time."
Non-filing by the wealthiest Americans has cost the federal government a significant amount of money in recent years. In 2023, a report found that more than 1.4 million high-earning U.S. taxpayers had not filed at all from 2017 to 2020, depriving the government of $65.7 billion.
The IRS does not know exactly how much it might recuperate through this current round of compliance letters. While the cases deal with financial activity of more than $100 billion, taxpayers may be able to claim credits or deductions. However, the agency said that "even with a conservative estimate, the IRS believes hundreds of millions of dollars of unpaid taxes are involved in these cases."
The IRS will send out between 20,000 and 40,000 compliance letters, or CP59 notices, each week, starting with the highest earners. That includes more than 25,000 who made more than $1 million between tax years 2017 and 2021 and more than 100,000 who made between $400,000 and $1 million. Individuals may be included in the total case count more than once if they refused to file on more than one year during the target period.
Those who fail to respond to the letters will face additional notices and enforcement actions, including audits, collections, and "potential criminal prosecution."
The IRS is making this effort now because it finally has the resources to do so, the agency explained.
"Without adequate resources, the IRS non-filer program has only run sporadically since 2016 due to severe budget and staff limitations that didn't allow these cases to be worked," the agency said.
However, the IRA earmarked $80 billion for the agency following years of chronic underfunding from Republican lawmakers and administrations, which has already allowed it to claim more than $500 million from wealthy tax evaders since 2022.
"With the Inflation Reduction Act resources, the agency finally has the funding to identify non-filers, ensure they meet this core civic responsibility, and ultimately help ensure fairness for everyone who plays by the rules," Werfel said on Thursday.
Thursday's announcement is only the latest in the IRS' renewed efforts to crack down on wealthy corporations or individuals who cheat on taxes. Last week, it announced plans to audit the use of private jets for non-business travel. The agency has also collected more than $480 million so far from a group of 1,600 millionaires who each owed at least $250,000, CNBC reported last week.
Overall, Werfel told CNBC there was a "tax gap" of over $150 billion each year that the wealthy owe but do not pay. However, spending on enforcement works: The IRS calculates that it earns back around $6 for every $1 spent.
"$13,011 per hour—that's the amount of unpaid taxes that the IRS has found by auditing the ultra-rich who made over $10 million in 2022," Sen. Elizabeth Warren (D-Mass.) posted on social media Thursday. "Funding the IRS to track down wealthy tax cheats pays off big time."
However, the IRS' new funding is already threatened by congressional Republicans. As part of the debt-ceiling deal, they successfully persuaded the Biden administration to slash $20 billion of the new IRA funding, and House Speaker Mike Johnson (R-La.) is pushing for more cuts. If the funding remains in place, the Treasury Department and IRS have calculated that the agency could boost government revenue by up to $561 billion over the next decade. The revenue would be around $100 billion less if the $20 billion in cuts go through.
"If millionaires and billionaires actually paid all the taxes they already owe, we'd have enough money to fund universal child care and STILL have more left over," Warren said further. "The IRS' crackdown on wealthy tax cheats is paying off—but Republicans are trying to stop it."
