Law360 (April 10, 2020, 1:52 PM EDT) -- By persuading nonfilers to register with the Internal Revenue Service to receive pandemic economic relief payments, the agency is positioning itself to collect substantially more revenue in the future from individuals who had previously stayed below its radar.
A man waited for an appointment outside an H&R Block tax preparation office in Brooklyn on Monday. (AP)
The agency has also begun reaching out to homeless shelters and immigrant communities to notify people operating outside the tax system that they may be eligible for government rebates, even enlisting the aid of private tax attorneys to get the word out.
While the agency's initiative will ensure that many more individuals who are not on the IRS rolls receive their rebates, it also means the government will benefit by guiding those people into the system and will likely eventually realize an increase in tax revenue from the effort.
"Each time you move the compliance rate up by 1%, you collect billions of dollars," Bryan Skarlatos, partner at Kostelanetz & Fink LLP, told Law360.
Under the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, the IRS will issue payments of up to $1,200 for individuals and $2,400 for couples filing joint tax returns. Those payments will be reduced for those with incomes above $75,000, or $150,000 for couples, and they will be eliminated for those with incomes of more than $99,000, or $198,000 for couples.
Social Security recipients who don't file tax returns will be able to receive coronavirus relief payments without having to file additional tax information. Lawmakers such as House Ways and Means Committee Chairman Richard Neal, D-Mass., have called on the IRS to also automatically issue payments to veterans and Supplemental Security Income recipients, given that the government already possesses their information.
But others, including some members of immigrant communities who don't qualify for Social Security payments and who participate in the informal economy, will not receive automatic payments from the IRS because they're not on the agency's books. That being the case, they would need to provide their personal information to the IRS to receive their rebates.
There were as many as 30 million individuals who failed to file tax returns to the IRS in 2011, according to a report issued by the Joint Committee on Taxation. Similarly, the Urban-Brookings Tax Policy Center estimates that 15 million households didn't file their taxes in 2019.
The IRS unveiled a free tool available on the agency's website Friday, a tool that allows nonfilers to register to receive their economic impact payments by submitting a name, Social Security number, address and information on dependents.
"People who don't have a return filing obligation can use this tool to give us basic information so they can receive their economic impact payments as soon as possible," IRS Commissioner Chuck Rettig said in a statement.
Separately, Rettig personally contacted bar associations and other groups such as the American College of Tax Counsel this month, asking them to help notify nonfilers about their eligibility to receive the payments.
Frank Agostino of Agostino & Associates is taking a lead role in coordinating with other firms, the Taxpayer Advocate Service, low-income taxpayer clinics, the Internal Revenue Service Advisory Council, the Taxpayer Advocacy Panel and other organizations to spread the word.
Many of those who were perfectly satisfied with operating off the books before the coronavirus pandemic are suddenly confronting a radically different economic landscape, given the fallout associated with the virus, Agostino told Law360. Once they make themselves known to the IRS, that will likely translate into higher compliance rates and larger revenue hauls down the road, he said.
"If the choice is between starving and cooperating with the IRS, then you're going to see people coming out of the shadows," he said. "Once you're in the IRS' system, you're in the IRS' system for good."
Peter Connors, a partner at Orrick Herrington & Sutcliffe LLP and president of the American College of Tax Counsel, said that the value of assimilating former nonparticipants into the tax system shouldn't be understated and that the agency's honey-instead-of-vinegar approach would likely prove fruitful.
"There are so many people that are operating on a cash basis," Connors said.
--Editing by Robert Rudinger and John Oudens.
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