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The Internal Revenue Service (IRS) has launched an initiative to address tax non-compliance among high-income individuals. This latest effort targets over 125,000 instances where individuals with substantial earnings have failed to file federal income tax returns since 2017. Notably, this includes more than 25,000 cases involving individuals with incomes exceeding $1 million and over 100,000 cases of individuals with incomes ranging between $400,000 to $1 million for the tax years 2017 to 2021.
Funded by the Inflation Reduction Act, this campaign aims to bolster tax compliance and ensure fairness across the board. IRS Commissioner Danny Werfel emphasized the importance of this initiative, especially during tax season, stating, “At this time of year when millions of hard-working people are doing the right thing by paying their taxes, we cannot tolerate those with higher incomes failing to do a basic civic duty of filing a tax return.”
The operation starts with the IRS dispatching compliance letters, specifically the CP59 notice, to alert these high earners of their failure to file. These letters are a precursor to more substantial follow-up actions, including penalties and possibly criminal prosecution for those who continue to disregard their filing obligations.
This enforcement move is part of a broader IRS strategy to close the tax gap and ensure that individuals and entities at all income levels are paying their fair share. The initiative targets cases identified through third-party information, such as W-2 and 1099 forms, indicating significant financial activity but no corresponding tax return.
The IRS’s capacity to undertake such comprehensive compliance efforts has been rejuvenated thanks to the Inflation Reduction Act, which has provided the necessary resources to reinvigorate the non-filer program. This program had been inconsistently operated since 2016 due to budget and staffing constraints that left many high-income non-filer cases unaddressed.
Recipients of the CP59 notice are urged to act swiftly to file their overdue tax returns and settle any outstanding taxes, interest, and penalties. The failure-to-file penalty can accrue to 5% of the tax owed each month, up to a maximum of 25%. The IRS also offers guidance for non-filers on its website and recommends consulting with a trusted tax professional to navigate the filing process and explore potential credits and deductions that could apply.
The IRS’s aggressive stance on high-income non-filers is part of a larger effort to enhance tax compliance across the spectrum, including large corporations and partnerships. With the advent of advanced technologies like artificial intelligence (AI), the IRS is also ramping up audits and pursuing tax debts more vigorously, including nearly $500 million in taxes owed by millionaires.
As the IRS intensifies its compliance activities, high-income individuals who have neglected their tax filing responsibilities face increasing risks, including significant financial penalties and legal repercussions. This initiative underscores the IRS’s commitment to fairness and equity in the tax system, ensuring that all taxpayers, regardless of income level, contribute their fair share.
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