On Feb. 29, the Internal Revenue Service announced a new initiative targeting individuals who failed to file income tax returns for 2017 and later years. This initiative, funded by the Inflation Reduction Act, follows on the agency’s larger effort to examine large corporate, partnership, and high-income individual filers. See September 2023 GT Alert. It also complements the IRS’s tax-collection efforts targeting millionaires with large tax debts. So far, the IRS says it has collected nearly $500 million because of these efforts.

This new non-filer effort includes taxpayers with income between $400,000 and $1 million between 2017 and 2021. Over 100,000 compliance letters are being mailed to individuals in this group, with about 20,000 to 40,000 letters (CP-59) going out each week. For non-filers with more than $1 million in income, the IRS will send compliance letters to more than 25,000 individuals. The identification of high earners in these two categories derives from third-party information provided to the IRS through various information returns and forms, such as Forms W-2 and 1099s.¹

The IRS announcement warns taxpayers to take immediate action to avoid additional notices and higher penalties and to talk to a trusted tax professional as soon as possible. Those who do not respond to the IRS’s compliance letter will receive additional notices and other audit and collection enforcement action, including potential criminal prosecution. The IRS has the authority to prepare a tax return for a non-filer based only on the income information reported to it and without crediting the taxpayer with deductions and exemptions to which it might be entitled, creating a higher tax liability. These returns, called a Substitute for Return (SFR), can lead to enforced collection activity by the IRS to collect the higher tax liability and/or require the non-filer to bring an action in court to challenge the IRS’s determinations. 

The bottom line is that the IRS now has the resources and the will to pursue high-income non-filers and is doing so.

¹ The information reported to the IRS is available to an individual taxpayer on a Wage and Income Transcript.