Numbers of nonfilers

[Demosthenes]

Whoa. Even if only half of these are in-state nonfilers, I think our 500,000 estimate may be low.

Thoughts, Dan?

Franchise Tax Board
News Release
Tel 916.845.4800 | Public Affairs Office
Cell 916.825.8814 | John Barrett
Cell 818.968.2374 | Holly McDonell
02.04.2008

FTB Seeks Tax Returns from 750,000 Non-Filers

SACRAMENTO - The Franchise Tax Board (FTB) announced today that it will contact more than 750,000 California taxpayers who earned California income but failed to file state income tax returns last year.

"Last year, California taxpayers voluntarily filed more than 15 million tax returns and paid nearly $28 billion in state income taxes. Honest taxpayers do their part to ensure that necessary dollars go towards critical services such as education and public safety. They should not have to foot the bill for those that unfairly avoid filing tax returns," said State Controller and FTB Chair John Chiang.

The FTB receives more than 350 million income records annually from third parties such as the IRS, banks, employers, state departments, and other sources. In addition to wage earners and self-employed people who have not filed, the FTB’s filing enforcement program also detects other nonfilers through occupational licenses and mortgage interest payments.

The FTB matches this information against the records of tax returns filed. If there is not a return on file, FTB will notify nonfilers that they have 30 days to file their return or show why a tax return is not due. If a return is required but not received, the FTB will issue a tax assessment based on the state’s estimate of tax due with added penalties and fees that can add up to 50 percent of the taxes owed.

Similar annual filing enforcement programs have been used since the 1950s. The majority of nonfilers who respond and become current in their tax filings voluntarily comply in subsequent years.

The FTB has information for those who receive notices on its Website. Go to http://www.ftb.ca.gov and select the Bills and Notices tab, then the Request/Demand for Tax Return, Get more information link. Taxpayers can request more time to respond, retrieve information that can assist them in filing a tax return, request tax forms, learn about payment options, and much more. Individuals can also call the FTB at 866.204.7902 to get information.

[Imalawman]

You'd be surprised how many people simply don't file a state return or think that they've filed in the right state. I really don't think this is indicative of TP non-filers. I would venture a guess that a good bit of the 750,000 have filed with the feds.

That said, I do think 500,000 is on the low side, but no more than 1 million.

[Nikki]

How many of the 750,000 are children earning interest on their savings accounts or are other people falling below the minimum filing threshold?

[Demosthenes]

How many of the 750,000 are children earning interest on their savings accounts or are other people falling below the minimum filing threshold?

Do you think my estimate of 50% of these nonfilers being real nonfilers is accurate?

I think the bigger question is how many of the 750,000 returns are tax deniers, and how many are garden variety cheats?

[Imalawman]

How many of the 750,000 are children earning interest on their savings accounts or are other people falling below the minimum filing threshold?

Do you think my estimate of 50% of these nonfilers being real nonfilers is accurate?

I think the bigger question is how many of the 750,000 returns are tax deniers, and how many are garden variety cheats?

I can call some people in CA if you'd like, but I really think the number is around 100,000 and no more than 150,000. Even that is a large amount. Keep in mind that a majority of TPs file returns - even if they're completely wrong. Most states wouldn't classify these with non-filers. They usually have some other tags for them.

[Demosthenes]

Keep in mind that a majority of TPs file returns

How do you know this?

Most of the TDs I watch file a couple of years of amended returns and then stop filing entirely. The amended return thing really dropped in popularity a couple of years ago.

[Dezcad]

Keep in mind that a majority of TPs file returns - even if they're completely wrong. Most states wouldn't classify these with non-filers. They usually have some other tags for them.

Here's a tag for them - LostHead.

[Imalawman]

Keep in mind that a majority of TPs file returns

How do you know this?

Most of the TDs I watch file a couple of years of amended returns and then stop filing entirely. The amended return thing really dropped in popularity a couple of years ago.

Well...ok, so I don't know this for certain. I'm relying on studies done by the department for whom I'm an attorney, discussion with other persons involved in this area, and my own observations. The fact is that its impossible to know for certain because they're non-filers and its hard to know why they don't file and even who is not filing a return.

So, its an educated guess that the number of TPs who don't file at all are smaller than those that have filed at least something to get them into the system and have them labeled accordingly.

Why do you think the number is upwards of 50%?

[Demosthenes]

I don't have any studies whatsoever, just guestimates. That's why I'm curious about what others have seen.

[Disilloosianed]

Most of the ones that end up in litigation are non-filers for us, but that's just a function of how they are located, an information sharing agreement with the IRS. If the IRS determines someone is a non-filer and they are from KY, we will be notified. That doesn't really get to what the true breakout of non-filers to odd-filers is, though.

[Dr. Caligari]

I have read that when the IRS pursues nonfilers found as a result of computer matching of information returns, at least half are people who were owed a refund. I doubt anything like a majority of these nonfilers are TPs of any kind.

[jg]

I would be curious to know if the income information includes Form 1099-B (for gross proceeds from broker sales) as those reports are almost always false indicators of any tax due.

For state purposes, a 1099-B with a California address on the statement might not even be California source income.

Just curious.

[Dr. Caligari]

How many of the non-filers are here illegally? Or, how many of the non-filers do not realize that they actually have to file a return. Remember, a lot of immigrants, legal and otherwise, have come from places and backgrounds where they have never been taxed, or have never had to fill out income tax returns like we do here. Therefore, they do not know that they have to do so.

Also, how many of the non-filers are businesses that are defunct, or people who are dead, or people who have gotten married/divorced and now use a new name?

On the federal level, nonfilers include many of those groups, and also many low-income people who did not earn enough to owe taxes but actually are owed refunds because of withholding.

[Demosthenes]

This release is from the Enforcement Program. I'd assumed that the numbers provided indicate people who are actually not in compliance with California filing requirements. I'll get more info from the CA FTB on what the numbers mean.

[LPC]

I can think of a number of reasons why California might measure more non-filers that the IRS would measure.

A major factor could be that state filing thresholds are usually lower than federal thresholds, and I think people often fail to file state returns if they're not required to file federal returns.

The fact that CA is getting finding non-filers based on income reported from the IRS suggests that these are not tax-denier-style non-filers but something else.

[Quixote]

This release is from the Enforcement Program. I'd assumed that the numbers provided indicate people who are actually not in compliance with California filing requirements. I'll get more info from the CA FTB on what the numbers mean.

The list would probably exclude people with income below the state's filing requirement, although as jg has pointed out, the list could well include people with capital gains below the filing requirement, because the state probably computes the gain using a basis of $0.00. Thus, retirees cashing in some shares could have received 1099-B's for several thousand dollars, but have little or no gain, and no filing requirement.

On the other hand, the list probably does not include non-filing undocumented workers working under either someone else's social security number (SSN) or an individual tax identification number (ITIN). If any one of the multiple people using a given SSN files a return, then it is likely that none of the others will be counted as non-filers. And, as nearly as I can tell, SSA does not share with the IRS income information filed under an ITIN.

[jkeeb]

Demo, I would imagine the IRS has a number available. Collections runs a delinquent return program. As stated above, a bunch of these include stuff like money market withdrawals that brought people over the filing requirement.

I worked the program for a year when I was in Corr Exam. Very few of the non-filers were protestors. The most used excuse was divorce. (BTW, by very few, I mean less than one per cent).

[Demosthenes]

Demo, I would imagine the IRS has a number available.

I'm sure they have a number for tax deniers. Whether or not it's available...