On February 29, 2024, the IRS announced a new initiative focused on high-income taxpayers who have failed to file federal income tax returns since 2017. As part of this initiative, the IRS is sending compliance letters to more than 125,000 taxpayers where tax returns have not been filed since 2017. The taxpayers include more than 25,000 with more than $1 million in income, and over 100,000 with incomes between $400,000 and $1 million between tax years 2017 and 2021.
According to the IRS, these are all cases where the IRS has received third party information—such as through Forms W-2 and 1099s—indicating these people received income but failed to file a tax return. With new funding from the Inflation Reduction Act, the IRS is now able to focus again on significant non-filers.
In its announcement, the IRS warned that “People receiving these letters should take immediate action to avoid additional follow-up notices, higher penalties as well as increasingly stronger enforcement measures. People in this category should also consult with a trusted tax professional so they can quickly file their late tax returns and pay 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.” “People who don’t respond to the non-filer letter will receive additional notices and other enforcement actions. Ultimately, this can lead to a variety of IRS compliance activity, including collection and audit action as well as potential criminal prosecution.”
The IRS also noted that it “is continuing to pursue millionaires that have not paid hundreds of millions of dollars in tax debt. The IRS has collected nearly $500 million in ongoing efforts to recoup taxes owed by 1,600 millionaires with work continuing in this area. In other areas, the IRS is pursuing multi-million-dollar partnership balance sheet discrepancies, ramping up audits of more than 75 of the largest partnerships using artificial intelligence (AI) as well as other areas.” The IRS is also continuing to pursue fraudulent or invalid employee retention credits (ERC).
The tax litigation lawyers at Sideman & Bancroft have extensive experience representing non-filers and handling IRS audit and investigation representation, as well as providing tax resolution services (https://www.sideman.com/practices/tax/). If you have questions, please contact Sideman & Bancroft Tax Group leader Steve Katz at: (415) 392-1960.
