The Internal Revenue Service (IRS) has announced a new initiative aimed at improving tax compliance and fairness, specifically targeting high-income taxpayers who have failed to file federal income tax returns. Since 2017, more than 125,000 cases of non-filing have been identified, involving individuals with substantial financial activity exceeding $100 billion.
Targeting High Earners
The initiative, made possible by funding from the Inflation Reduction Act, begins with the issuance of compliance letters to over 125,000 non-filers.
High Reported Income
Among these cases, over 25,000 individuals reported income surpassing $1 million, while more than 100,000 individuals reported incomes ranging from $400,000 to $1 million between 2017 and 2021.
Urgent Action Required
Recipients of these compliance alerts, formally known as CP59 notices, are urged to take immediate action to avoid further penalties and enforcement measures.
Failure To Respond
Failure to respond may result in additional notices, increased penalties, and potential criminal prosecution. The failure-to-file penalty accrues at a rate of 5% of the tax owed each month, up to 25% of the total tax bill.
Potential Revenue Gains
While the IRS estimates potential unpaid taxes in the hundreds of millions of dollars from these cases, it acknowledges the uncertainty surrounding the exact revenue to be gained.
Tax Liabilities
The financial activity identified through third-party information exceeds $100 billion, suggesting significant tax liabilities among non-filers. However, some individuals may be entitled to refunds.
Escalating Enforcement
For non-filers who do not respond to initial notices, the IRS may escalate enforcement actions, including audits, collection measures, and potential criminal prosecution. In cases of prolonged non-compliance, the IRS may file a Substitute for Return (SFR), calculating tax liabilities based on reported income from third parties.
Enhancing Tax Compliance
The new non-filer initiative underscores the IRS’s commitment to enhancing tax compliance and ensuring fairness in the tax system. High-income individuals who have failed to file tax returns are urged to address their tax obligations promptly to avoid further penalties and enforcement actions.
Tax Fairness
How might the IRS’s new initiative impact perceptions of tax fairness and compliance among high-income individuals? What are the potential implications of escalating enforcement measures, including audits and criminal prosecution, on non-filers and tax compliance?
Systemic Factors
How can the IRS balance the need for tax enforcement with the provision of support and resources for non-filers to fulfill their tax obligations? What systemic factors contribute to high-income individuals failing to file tax returns, and how can these barriers be addressed?
