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In a bold move to address tax compliance among high-income earners, the Internal Revenue Service (IRS) has unveiled plans to target over 125,000 individuals who have failed to file federal tax returns since 2017. These individuals, predominantly in the high-income bracket, will soon receive letters urging them to file their overdue returns or explain their non-compliance.

The IRS’s initiative specifically targets two key income groups: those with incomes surpassing $1 million and those earning between $400,000 and $1 million. This concerted effort follows the identification of non-filers through third-party data, including Forms W-2 and 1099s, indicating substantial income within these thresholds over the past few years.

IRS Commissioner Danny Werfel emphasized the significance of this endeavor, highlighting that despite the agency’s prior awareness of such cases, resource constraints hindered their pursuit until now. With funding allocated by Congress through the Inflation Reduction Act of 2022, the IRS can effectively revive its efforts to address non-compliance among high-income taxpayers.

Werfel stressed the gravity of the situation, noting that the collective economic activity of the identified non-filers surpasses $100 billion. However, the IRS still determines the specific tax credits and deductions these individuals may have overlooked. Nonetheless, conservative estimates suggest that hundreds of millions of dollars in unpaid taxes are at stake.

Beginning this week, the IRS will mail compliance alerts, called CP59 Notices, to targeted non-filers. Approximately 20,000 to 40,000 letters will be dispatched weekly, prioritizing those in the highest income categories. Recipients typically have eight weeks to respond, failing which could result in various enforcement actions, including audits, collection measures, and potentially criminal prosecution.

Moreover, the IRS retains the authority to file substitute tax returns based on reported income from employers and financial institutions for those who persist in non-compliance. Such actions may incur penalties of 5% of the monthly owed tax and up to 25% of the total bill.
While the focus remains primarily on high-income individuals, the implications extend beyond personal taxpayers. Small businesses and self-employed individuals, often navigating complex tax landscapes, should heed these developments closely. The IRS’s renewed commitment to tax enforcement underscores the importance of compliance for all taxpayers, regardless of income level or entity type.

As the initiative unfolds, taxpayers across the spectrum are urged to ensure their tax obligations are met promptly to avoid potential repercussions. Non-compliance consequences are far-reaching, necessitating swift action and cooperation with the IRS to rectify outstanding tax liabilities.

Source ( Journal of Accountancy News).