The IRS is currently on a mission to identify individuals who haven’t been filing their US tax returns each year. It is specifically targeting individuals who the IRS suspects are “high-income non-filers.”
As a result, many G-4 visa holders have recently ended up on the IRS’s radar.
Why? Well, one of the techniques that the IRS is using to identify non-filers is also identifying G-4 visa holders who haven’t filed returns. These G-4s don’t necessarily have a US tax return filing requirement, but the IRS is unable to determine that from its records. So, instead, the IRS is sending a letter (Letter 2269C) to the G-4s indicating that they potentially should have been filing tax returns.
Why is the IRS doing this?
The IRS launched the “High-Income Non-Filer” campaign in February 2020. This campaign is part of the IRS’s efforts to close “the tax gap.” The tax gap represents taxes owed to the IRS but not yet collected, estimated at about $630 billion for 2020 alone. By targeting high-income individuals who should have filed tax returns but have not done so, the IRS expects high rates of return on its efforts in this campaign.
Per Eric Hylton, the IRS Commissioner of the Small Business/Self-Employed Division, the campaign is about fairness:
“Taxpayers who exercise their best efforts to file their tax returns and pay their taxes, or enter into agreements to pay their taxes, deserve to know that the IRS is pursuing others who have failed to satisfy their filing and payment obligations.”
So why are G-4 visa holders being contacted?
The IRS uses various techniques to try to identify individuals who should have filed returns but have not done so. These techniques are not foolproof. They end up identifying some individuals who were not required to file returns (like some G-4s), along with individuals who should have filed returns but did not do so (the intended targets of the campaign).
The IRS does not disclose what techniques it uses to track down non-filers. However, it’s possible to deduce some of them from the letters the IRS has issued.
For instance, as part of this campaign, the IRS is sending out Letter 2269C to individuals who have paid more than $10,000 in mortgage interest but have not filed tax returns. The logic is that such individuals may have unreported income and may owe back taxes, along with significant penalties.
If you are a G-4 visa holder who owns property in the US but has not filed a US tax return, you may receive Letter 2269C.
If a financial institution submitted a Form 1098 to the IRS to indicate that you paid more than $10,000 of mortgage interest during the year, then the IRS may:
- Suspect that you are a “high earner,” capable of owning a house with a large mortgage
- Conclude that there’s a good chance that you are residing in the US and are required to file a US tax return
- Assume that if a tax return was not filed each year, then you may be a “high-income non-filer” and owe significant back taxes and penalties to the IRS
- Send Letter 2269C to notify you that prior tax returns appear to be missing.
Since many G-4 visa holders have US mortgages, we have seen a significant number of these letters in the past few months.
Are the letters correct? Do G-4s need to file US tax returns?
As a G-4 visa holder, you may or may not be required to file a US tax return. G-4 visa holders who are full-time employees of international organizations, such as The World Bank and the International Monetary Fund, and who do not earn income from other US sources may not be required to file a tax return because your salary is exempt from US taxation under IRC §893.
For many other G-4 visa holders, tax filings are required. This may be because you have elected to file jointly with a non-G-4 spouse or because you have other US income (such as rental income or capital gains). If you have filed returns, you shouldn’t receive Letter 2269C.
If you are a G-4 visa holder who receives IRS Letter 2269C, what should you do?
In the letter, the IRS indicates that the “potential non-filer” has 30 days to respond. It’s very important to respond to this letter! Even if you weren’t required to file past tax returns, you should not just ignore the letter.
If the 30 days pass without a response, the IRS will take further steps. It will begin “Substitute for Return” procedures, which involve making assumptions about your income and the taxes owed. These procedures can complicate matters further, creating a situation that is much more difficult to unravel.
In general, to respond to Letter 2269C, you should:
- Call the IRS. If you respond by letter, your response risks getting delayed by the IRS’s mail backlog.
- Let the IRS know that you are a “tax-exempt” individual on a G-4 visa.
- If requested, prepare a written response to the IRS explaining your tax-exempt status as a G-4 visa holder and citing the Internal Revenue Code sections that address exempt individuals. Please be careful: If you did have a filing requirement and did not file tax returns, it’s important that you get professional assistance and work with a CPA and attorney to evaluate your options and minimize penalties!
- Send the response letter to the IRS via fax or certified mail (with receipt).
If you prefer not to handle the response on your own, contact us, and we would be happy to help. We have a process in place to handle these responses efficiently. In general, our process involves:
- Filing Form 2848, Declaration of Representative, so that we may communicate directly with the IRS on your behalf
- Working with you to confirm that you did not have a filing requirement
- Preparing the necessary response to resolve the issue with the IRS.
The Wolf Group, PC has been providing tax services to international organization employees and retirees since 1983. We can assist G-4 visa holders in determining their US tax return filing requirements, preparing tax returns and informational disclosures, and resolving tax audits with the IRS.