The IRS has found that tens of thousands of wealthy Americans are not filing tax returns, possibly due to a quirk in federal tax law that makes it a felony to file false returns but only a misdemeanor not to file at all. In response, the IRS began contacting these “high-income non-filers” in early 2024, targeting those who had not filed returns since 2017. This effort resulted in nearly 26,000 non-filers submitting returns, generating $292 million in additional taxes being paid. However, only a fraction of the wealthiest non-filers, those with suspected income of over $1 million, have complied so far, with many not facing legal consequences.
The Treasury Department has proposed reclassifying the offense of failing to file tax returns as a felony for those who willfully and repeatedly fail to file in three out of five years, with unpaid taxes totaling at least $250,000. This new criminal penalty could result in up to five years in prison, a $250,000 fine, or both. The Treasury believes that increasing criminal penalties for high-income non-filers would deter tax evasion, promote compliance, and help close the tax gap. Overall, the IRS and Treasury are aiming to address the issue of wealthy individuals not meeting their tax obligations and shifting the burden of funding the federal government onto others.
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