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IRS to Begin Sending Notices to High-Income Taxpayers Who Haven't Filed Returns in Years

S.J. Steinhardt
Published Date:
Mar 1, 2024

The IRS has announced a new initiative to focus on high-income taxpayers who have failed to file federal income tax returns in more than 125,000 instances since 2017, The Washington Post, The Wall Street Journal and Accounting Today reported.

The agency will send out compliance notices on more than 125,000 cases where tax returns haven’t been filed since 2017. The mailings will include more than 25,000 to taxpayers with more than $1 million in income, and more than 100,000 to those with incomes between $400,000 and $1 million between tax years 2017 and 2021. The IRS noted that the initiative has been made possible by funding from the Inflation Reduction Act.

The IRS stated that it has identified these non-filers through third-party third party information, such as Forms W-2 and 1099s. The agency noted that because it previously had inadequate resources, it has run the non-filer program only sporadically since 2016. Because of the Inflation Reduction Act funding, "the IRS now has the capacity to do this core tax administration work," it said.

While the amount of potential revenue to be gained from this effort is uncertain, the third-party information on these taxpayers indicates financial activity of more than $100 billion, the IRS said in its announcement.

“At this time of year when millions of hard-working people are doing the right thing paying their taxes, we cannot tolerate those with higher incomes failing to do a basic civic duty of filing a tax return,” said IRS Commissioner Danny Werfel in the announcement. “The IRS is taking this step to address this most basic form of non-compliance, which includes many who are engaged in tax evasion. This is one of the clearest examples of the need to have a properly funded IRS. With the Inflation Reduction Act resources, the agency finally has the funding to identify non-filers, ensure they meet this core civic responsibility, and ultimately help ensure fairness for everyone who plays by the rules.”

About 20,000 to 40,000 of these compliance alerts for failure to file a tax return, known formally as a CP59 notice, will go out each week, beginning with the filers in the highest-income categories. The IRS indicated that some of these non-filers have multiple years included in the case count, so the number of taxpayers receiving letters will be smaller than the actual number of notices going out.

“If someone hasn’t filed a tax return for previous years, this is the time to review their situation and make it right,” said Werfel. “For those who owe, the risk will just grow over time as will the potential for penalties and interest. These non-filers should review information on that can help and consider talking to a trusted tax professional as soon as possible.”

Those who do not file within about two months of getting the letters can face further action from the IRS.

"If a person repeatedly fails to respond and does not file a tax return, the IRS may create a substitute tax return for the taxpayer," Werfel told Accounting Today. "The IRS calculates this substitute tax return based on wages and other income reported to the agency by employers, financial institutions and others. The substitute return factors in the tax penalty and interest owed by the taxpayer. This tax return might not give the person credit for the deductions and exemptions they may be entitled to receive. That's because the IRS does not know each taxpayer's situation. If the IRS files a substitute return, it is still in the person's best interest to file their own tax return to take advantage of any exemptions, credits and deductions they are entitled to receive. The IRS will generally adjust the account to reflect the correct figures. The tax return the IRS prepares for these taxpayers will likely lead to a tax bill, which if unpaid will trigger the collection process. This can include such actions as a levy on wages or a bank account, or the filing of a notice of a federal tax lien. If a taxpayer repeatedly does not file, they could be subject to additional enforcement measures, such as additional penalties and/or criminal prosecution."

The most common reasons people fail to file a return on time are procrastination, financial woes, tax evasion or protest, tax advisers told the Journal.

Taxpayers “forget one year, and then the next year, they say, ‘Well, if I file now, I’ll get in trouble for the year before,’ … Pretty soon, 15 or 20 years later, they’re in a lot worse trouble,” said Rob Kovacev, a former Department of Justice attorney, in an interview with the Post. He said that more than 15 years ago, before IRS budget cuts, his docket was full of non-filer cases, some for very rich people.

“You’ve got to get taxpayers back into the system,” Jim Buttonow, a CPA in Summerfield, N.C., told the Journal. “Don’t wait for the notice. If you haven’t filed, get back into compliance.”

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