Tens of thousands of wealthy Americans are not filing tax returns, taking advantage of a loophole in tax laws that makes it a misdemeanor not to file a return at all, rather than filing a false return which is a felony. Due to limited resources, the IRS has struggled to pursue non-filers, but in early 2024 they launched an effort to contact high-income non-filers and urge them to file returns. So far, progress has been made with nearly 21,000 wealthy non-filers filing returns, resulting in $172 million in additional taxes being paid. However, many very wealthy non-filers, with suspected incomes of over $1 million, are still not complying, and only a fraction have filed returns despite warning notices. The IRS has limited resources for criminal investigations and prosecution against non-filers, with only 62 open investigations out of the 25,000 very wealthy non-filers identified. Treasury has proposed reclassifying misdemeanor offenses of non-filers as felonies in cases where the unpaid tax bill in a five-year period exceeds $250,000, in an effort to increase federal revenues and deter tax evasion. Overall, the lack of compliance by high-income taxpayers has significant implications for tax administration and collection, shifting the burden to other taxpayers.
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