On February 29, 2024, the Internal Revenue Service (“IRS”) announced a new effort targeting high-income non-filers who have failed to file federal income tax returns. (IR-2024-56, Feb. 29, 2024). Based on recent IRS pronouncements and our experience with prior non-filer programs, we expect IRS efforts to be swift and forceful. This is especially true for professional athletes, celebrities, influencers, or other individuals with a significant public profile.

Starting this week the IRS will send compliance letters (CP59 Notice) in over 125,000 cases where tax returns haven’t been filed since 2017. The compliance letters target over 25,000 taxpayers earning more than $1 million in income and over 100,000 taxpayers with income between $400,000 and $1 million. Commissioner Daniel Werfel stated that “the IRS is taking this step to address the most basic form of noncompliance, which includes many that are engaged in tax evasion.”

The IRS notices are generated based on instances where the IRS has received third party information from Forms W-2 and 1099 that indicate that a taxpayer received income but did not file a tax return.

The IRS will stagger the compliance letters. Approximately 20,000 to 40,000 letters will go out each week. Commissioner Daniel Werfel said to reporters that individuals that receive the compliance letters will have approximately 8 weeks to respond.

Substitute For Return

If non-filers do not respond to these notices, the IRS could file a Substitute for Return (“SFR”). A SFR calculates the return based on information reported by third parties including by employers and financial institutions. A SFR typically does not give individuals credit for deductions and exemptions. The IRS will then send a Notice of Deficiency proposing a tax assessment including interest and penalties. The taxpayer will then have 90 days to file a petition in the United States Tax Court. If the taxpayer does not respond to the notice, the IRS will assess the tax and proceed to collection.

If You Receive a Notice

Non-filers who receive a notice should take immediate action to respond. Failure to respond will lead to additional notices and likely IRS enforcement action including collection, audit, or even criminal prosecution.  The IRS has indicated that it will give non-filers 60 days to respond to these notices. The IRS is strongly encouraging non-filers to take immediate action to address their tax compliance issues.

Now is the time to get into compliance with the IRS to mitigate the risk of significant civil penalties or criminal exposure.  

Authored by Ashley McClure.