The Internal Revenue Service has announced a new initiative to enhance tax compliance and ensure equity. The campaign will concentrate on wealthy taxpayers who have neglected to file their federal income tax returns in over 125,000 instances since 2017.
Non-Filer Initiative
Starting this week, the IRS will send compliance letters to individuals who have not filed their tax returns since 2017. This initiative has been made possible by funding from the Inflation Reduction Act. Of the 125,000 letters, over 25,000 will be sent to individuals with income exceeding $1 million, and the remainder will be sent to those with incomes between $400,000 and $1 million for the years 2017 to 2021.
The IRS has received third-party information through Forms W-2 and 1099s, indicating that certain individuals have received income within certain ranges. However, these individuals have failed to file their tax returns. The IRS non-filer program has been running sporadically since 2016 due to severe budget and staff limitations, preventing these cases from being worked on. With the availability of new Inflation Reduction Act funding, the IRS now has the capacity to perform this crucial tax administration work.
“ 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. “ 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.”
The Internal Revenue Service (IRS) will start mailing compliance alerts, called CP-59 Notices, for failing to file a tax return this week. The letters will be sent out in batches of 20,000 to 40,000 weekly, starting with the highest-income filers. It is worth noting that some non-filers have multiple years included in the case count, so the actual number of taxpayers receiving letters will be smaller than the total number of notices being sent out.
Recipients of these letters are advised to take immediate action to avoid further follow-up notices, higher penalties, as well as stronger enforcement measures. Individuals falling under this category are also encouraged to seek the advice of a trusted tax professional, who can help them file their late tax returns and pay any delinquent tax, interest, and penalties promptly. Additionally, the IRS website offers special information for non-filers that can help them with their tax-related queries.
The IRS may not be aware of certain credits and deductions that some people are eligible for, which makes it difficult to determine the revenue that can be generated from this effort. Third-party information on these taxpayers indicates that they have been involved in financial activities exceeding $100 billion. Even with a conservative estimate, the IRS believes that hundreds of millions of dollars of unpaid taxes are involved in these cases. However, it is also possible that some non-filers may be owed a refund.
“ If someone hasn’t filed a tax return for previous years, this is the time to review their situation and make it right,” Werfel said. “ 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 IRS.gov that can help and consider talking to a trusted tax professional as soon as possible.”
The new non-filer effort focused on high-income taxpayers who haven’t submitted a tax return is part of this larger effort to expand IRS compliance work to ensure fairness in the tax system.
Substitute for Return for Non-Filers
Individuals who fail to respond to the non-filer letter will receive further notices and face other enforcement actions. This may result in various IRS compliance activities, including collection and audit procedures, and could potentially lead to criminal prosecution. Additionally, the IRS may file a Substitute for Return (SFR) as a part of this process.
If a person repeatedly fails to respond and does not file, the IRS may create a substitute tax return for the taxpayer. The IRS calculates a substitute tax return using income reported by employers, financial institutions and others. This return includes taxes, penalties, and interest owed by the taxpayer.
This tax return might not give the person credit for deductions and exemptions they may be entitled to receive because the IRS does not know each taxpayer’s situation. If an individual fails to file their tax return, the IRS will send them a Notice of Deficiency which will propose a tax assessment. Following this, the taxpayer will have 90 days to either submit their past due tax return or file a petition in Tax Court. If they fail to do either, the IRS will proceed with the proposed assessment.
If the IRS files a substitute return on behalf of a taxpayer, it is still recommended that the taxpayer file their own tax return to ensure that they receive any exemptions, credits, and deductions they are entitled to. The IRS will typically make adjustments to the account to reflect the correct figures once the taxpayer files their own return.
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 federal tax lien. If a taxpayer fails to file repeatedly, they may be subject to additional penalties and criminal prosecution.
Get Help from Tax Resolution Specialists
If your concerned about the IRS non-filer initiative or have other back tax problems, call the tax resolution specialists at East Coast Tax Consulting Group today at 561-826-9303 for a Free consultation.