High-income earners who have not been filing their tax returns are in the crosshairs. A recent IRS news release announced an extensive plan to root out high-income taxpayers who have failed to file federal income tax returns in more than 125,000 instances since 2017. The agency estimates that this campaign will involve hundreds of millions of dollars in unpaid taxes.
The IRS hasn’t had the funds to pursue non-filers since 2016, but with the new Inflation Reduction Act, passed into law in 2022, and a directive from Treasury Secretary Janet Yellen, the IRS now has the resources to address this pervasive compliance issue – and it’s pulling out the stops.
At the start of March 2024, the IRS began its campaign by sending noncompliance letters to more than 25,000 people who earned more than $1 million per year, and 100,000 people with incomes falling between $400,000 and $1 million, who have failed to pay their taxes between 2017 and 2021. All of these cases have shown up on the IRS’ radar through third party sources – like Forms W-2 and 1099s – which show they have earned income but haven’t followed up with a filing. Since the IRS is not aware of any possible credits or deductions these filers may have, they have no clear estimate of the potential revenue that they hope to earn through this initiative. However, the third party information points to financial activity of more than $100 billion and the IRS estimates that hundreds of millions of dollars of unpaid taxes are in question. Conversely, because the IRS does not have all the details of the potential filings in hand, some of these non-filers may not owe the IRS anything at all and may even be due a refund.
The IRS expects taxpayers to take immediate action upon receipt of its compliance letter, formally known as the CP59 notice. Ignoring them means additional follow-up notices, higher penalties, and the potential for stronger enforcement measures. The IRS also advises non-compliant taxpayers to consult with their tax professionals for help filing late tax returns and paying delinquent tax, interest, and penalties. The failure-to-file penalty amounts to 5% of the amount owed every month – up to 25% of the tax bill.
For high-end non-filers, your time may be up. If the IRS’ manhunt applies to you, be sure to reach out to a tax professionals to refile, address your tax balance, and regroup.
This material has been prepared for informational purposes only, and is not intended to provide or be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.
