IRS delayed action on thousands of high-income nonfiler cases, TIGTA says

The IRS advanced nearly 39,000 high-priority cases in its high-income nonfiler initiative after the Treasury Inspector General for Tax Administration (TIGTA) alerted the agency during an audit that the cases remained stalled in first-notice status.

The IRS agreed with TIGTA’s six recommendations and said it advanced the affected cases in March 2026. TIGTA said that the nearly 39,000 stalled cases represented approximately $15.7 billion in potential tax assessments. The watchdog estimated that earlier action on the cases could have resulted in returns or assessments in 10,482 cases, involving about $321.3 million in additional tax. That additional tax amount, according to a TIGTA email response, still can be collected by the IRS.

As of June 30, 2025, 38,824 high-priority cases involving 33,653 taxpayers remained in first-notice status and had not progressed through the agency’s normal enforcement process, TIGTA said in the report released Sept. 4.

According to the report, IRS collection function management requested in March 2024 that final notices be delayed because of concerns about available resources to work the cases. The delay prevented the cases from advancing through the return-delinquency process and stopped additional collection notices and enforcement actions.

In response to a JofA email, TIGTA said auditors alerted the IRS during the review that the high-priority cases remained in first-notice status because of a systemic error. TIGTA said that after it worked with the IRS on the issue, the agency determined the cause of the problem and took action to move the accounts forward so taxpayers would receive final notices and potentially face additional enforcement action.

The report examined a high-income nonfiler initiative the IRS launched in February 2024. The initiative monitored 135,270 cases, including taxpayers with income of $400,000 or more, federal employees, IRS employees, and certain taxpayers identified through a Senate Finance Committee request.

After excluding cases that did not receive notices or involved other factors, TIGTA analyzed 111,566 cases. Of those, returns had not been filed and assessments had not been made in 81,417 cases, or 73%, as of June 30, 2025.

TIGTA said that 38,824 cases remained in first-notice status. IRS procedures generally call for taxpayers to receive a final notice about eight weeks after a first notice if no return is filed, the report said.

The report also found that 10,969 high-priority cases involving 8,853 taxpayers remained in the IRS collection queue awaiting assignment as of June 30, 2025. Those cases represented approximately $2.5 billion in potential tax liability.

TIGTA estimated that prioritizing the queued cases could result in returns or assessments in 2,962 cases involving 2,399 taxpayers and approximately $90.8 million in additional tax due. The watchdog noted that the IRS reduced the backlog of queued cases to 9,463 by Dec. 31, 2025.

In addition, TIGTA found that the IRS issued first notices in 4,918 cases involving 4,748 taxpayers who had already filed returns. According to the report, many of those taxpayers were included in the initiative because their returns had not yet been processed and posted to their accounts.

The report said 1,433 of those returns took more than a year to post. TIGTA concluded that the IRS “compromised the right to quality service” by including taxpayers who had already filed in the initiative while their returns remained unprocessed. Those taxpayers may have faced additional burdens as a result, the report said. 

More broadly, TIGTA said the IRS lacks coordinated, agencywide oversight of its nonfiler programs and continues to prioritize balance-due accounts over nonfiler cases. The report found that the IRS’s Nonfiler Executive Steering Committee has not met since September 2020.

TIGTA also found that the agency does not separately track resources devoted to nonfiler programs and lacks performance reporting that would allow management to evaluate the effectiveness of individual nonfiler enforcement efforts.

The report noted that the IRS estimates the gross tax gap, the difference between tax owed and tax paid voluntarily and on time, for tax year 2022 was $696 billion. About $63 billion, or 9%, of that amount was attributable to nonfilers.

The IRS said in its response that it has expanded nonfiler enforcement efforts in recent years, including the high-income nonfiler initiative, and is using analytics, automation, and artificial intelligence to identify potential noncompliance earlier and improve case selection. The agency said it is focusing enforcement resources on taxpayers who pose the greatest compliance risk, while balancing nonfiler work with other enforcement priorities.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.