The IRS is Leaving Billions on the Table. Here’s How It Can Collect That Money.

Every year the Internal Revenue Service leaves billions of dollars in tax revenue on the table by failing to pursue high-income individuals who don’t bother to file tax returns. A report released last month by the Treasury Department’s inspector general estimated that the amount of lost revenue was nearly $50 billion between 2014 and 2016 alone — an outrage at a time of soaring deficits and growing needs.

The situation wasn’t always this way, and it can be fixed. The inspector general’s report exposes one piece of the larger “tax gap,” the difference between what the government is owed and what it manages to collect. That gap is a consequence of failing to adequately fund the IRS and the agency’s failure, even with limited resources, to focus on collecting taxes from high-income filers.

For the IRS, going after non-filers should be the easy part of fixing the tax gap. Indeed, in the early 1990s, when individuals failed to file tax returns, the IRS essentially always followed up, since this evasion is relatively simple to detect. As the report notes, “pursuing nonfilers is one of the IRS’s most efficient enforcement strategies because issuing nonfiler notices can be a cost-effective tool that requires little more than automated notices.”

But in recent years, the IRS has failed to pursue more than one-third of high-income non-filers, defined as those making $100,000 or more annually. This means that between 2014 and 2016, the IRS never worked cases involving more than 300,000 high earners who failed to file tax returns.