The Internal Revenue Service could unearth as much as $1.3 billion in unpaid taxes, penalties and interest by making better use of currency report data to identify taxpayers with potentially unreported income, according to a new government report.
The report, by the Treasury Inspector General for Tax Administration, assessed the IRS’s use of currency reports to address nonfilers and under-reporters. Banks and other financial institutions are required to file reports on currency and suspicious transactions, which are in turn used by law enforcement officials to battle a range of financial crimes, such as narcotics trafficking, tax evasion and financing of terrorist activities.
TIGTA identified a number of individuals who have enough cash to engage in currency transactions totaling at least $20,000, but did not file tax returns even though they appeared to have a filing requirement.
TIGTA also identified a number of other individuals engaged in similar currency transactions who filed tax returns, but reported income that did not appear sufficient to cover their basic living expenses. The difference between their income and expenses raises questions about whether additional income sources should have been reported.
TIGTA estimated that 42,804 potential nonfilers may collectively owe as much as $576 million in delinquent taxes, penalties and interest for 2007. TIGTA also estimated there are 78,770 potential under-reporters who may owe as much as $758 million in additional taxes, penalties and interest for 2007.
TIGTA recommended that, as resources become available, the IRS should explore the feasibility of making greater use of currency transaction reports to pursue additional nonfilers and under-reporters for audit.
IRS management agreed with the recommendation. However, IRS management did not commit to pursuing additional potential under-reporters for audit, nor did they agree with the outcome measure because of concerns with the selection criteria used. TIGTA maintains that the potential $1.3 billion of increased revenue is reasonable considering the assumptions used to make the estimate.
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