Don't Mess With Taxes

That's not going to stop the latest IRS effort to get wealthy individuals to file tax returns. (Image: Giphy)

The Internal Revenue Service crackdown on wealthy taxpayers who are skirting tax laws continues.

Last month, Uncle Sam's tax agency announced plans to audit business aircraft that were used, most often by well-paid corporate execs, for personal travel.

Now it's cutting right to the chase, going after wealthy taxpayers who haven't filed federal tax returns for years.

This week, the IRS issued compliance letters on more than 125,000 cases where tax returns haven't been filed since 2017. The mailings include more than 25,000 to those with more than $1 million in income.

Another 100,000+ are going to people who had incomes between $400,000 and $1 million between tax years 2017 and 2021.

Snared by third-party reporting: So how did the IRS determine who gets these notices?

They are all cases where IRS has received third-party third party information, such as W-2 and 1099s forms, but those amounts weren't reported by the non-filing recipients.

The IRS said its efforts to match these amounts with non-filers had operated sporadically since 2016 due to severe budget and staff limitations. However, with the added funds provided by the Inflation Reduction Act funding available, the IRS says it now has the capacity to do this core tax job.

"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 announcing the non-filer initiative.

"The IRS is taking this step to address this most basic form of non-compliance, which includes many who are engaged in tax evasion," added Werfel.

Highest paid non-filers atop the mailing list: The compliance alerts for failure to file a tax return are formally known as IRS CP59 notice.

The IRS says it will send about 20,000 to 40,000 letters each week, beginning with the filers in the highest-income categories.

Some of these non-filers have multiple years included in the case count, noted the IRS, so the number of taxpayers receiving letters will be smaller than the actual number of notices going out.

Dollar amount due unclear: Since the IRS doesn't know the non-filing individuals possible tax credits and deductions, the agency can't speculate on the amount of revenue the U.S. Treasury could potentially collect.

However, it did say that the third party information on these taxpayers indicates financial activity of more than $100 billion.

Even with a conservative estimate, the IRS believes hundreds of millions of dollars of unpaid taxes are involved in these cases.

In the cases where taxpayers do owe, they will end up paying more than their tax bills, which have in some cases been delinquent since 2017. Penalties and interest will be applied starting from those returns' original due dates.

The interest charges vary, but the failure-to-file penalty is 5 percent of the amount owed every month, up to 25 percent of the tax bill.

What to do if you get an IRS notice: Regardless of how much or little you make, any time you get any IRS notice, you need to act, and promptly.

Since this latest IRS action involves the CP59, here's what you can expect if you get this non-filer compliance alert from the IRS.

You will get a CP59 notice when the IRS has no record that you filed a personal tax return(s).

The CP59 has been recently updated, as part of the IRS' effort to simplify communications and make notices and what they require more understandable. The notice provides details on what you need to do to resolve your non-filing status, including —

• File a signed, personal tax return immediately or explain why a return is not required.
  
  
• Complete Form 15103, Form 1040 Return Delinquency (excerpt shown below), that is included with the notice.

See more tax forms and more about them at Tax Forms 2024.

On Form 15103, you can explain:

• Why you're filing late,
• Why you don't have to file, or
• That you have already filed.
  
  
• Detach the notice stub and mail it with your tax return and completed Form 15103 using the envelope provided.

Alternatively, you can fax your information to the number in the notice, using either a fax machine or an online fax service.

You can get additional information and answers to frequently asked questions on IRS.gov's Understanding Your CP59 Notice page.

Act or face additional consequences: People receiving these CP59s should act immediately to avoid additional follow-up notices, higher penalties as well as increasingly stronger enforcement measures.

You also should follow-up just in case your late filing could produce a tax refund. That's a possibility, although admittedly a slim one for the wealthy filers who are the targets of this latest non-filing collection effort.

Still, those who are due a refund risk losing it if they file within three years of the return due date.

Taxpayers who don't respond to a non-filer letter will receive additional notices and other actions. Ultimately, this can lead to a variety of IRS compliance activity, including collection and audit action, as well as potential criminal prosecution.

Tax Felon Friday: Ah, yes. Potential criminal prosecution.

If any of the wealthy taxpayers who didn't file between 2017 and 2021 and who are getting notices eventually end up in the deepest tax criminal hot water, they'll be candidates for future mention on Tax Felon Friday.

If you want to catch up on all sorts of tax miscreants that already made it into this category, the ol' blog's Tax Felon Friday page is a good place to start.

And if you want more tax crime posts, notably those that were published long before I gave them a special end-of-week feature, you can peruse, what else, the tax crimes category. You'll find this post at the top of that collection right now, so just scroll down for more.

You also might find these items of interest:

• IRS tax notice do's and don'ts
• IRS redesigning tax notices so they're more intelligible
• IRS to crack down on personal travel via corporate jets
• AI will be part of expansive IRS crackdown on wealthy, corporate tax evaders
  
  

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