The IRS is taking action against non-filers by sending out CP59 notices to over 125,000 individuals who have not filed their tax returns since 2017. Of these cases, more than 25,000 involve individuals with incomes over $1 million, and more than 100,000 involve individuals with incomes between $400,000 and $1 million. The non-filers were identified through third-party information that indicated they received income but failed to file a tax return, with the total financial activity amounting to over $100 billion.
The Inflation Reduction Act of 2022 provided additional funding for the IRS to pursue these non-filer cases. The IRS had previously been limited in its ability to work on these cases due to severe budget and staff constraints. If recipients of CP59 notices fail to respond, the IRS has the option to file a Substitute for Return, calculating taxes owed based on reported income. This process does not take into account deductions and exemptions to which the taxpayer may be entitled, leading to a potential tax bill plus penalties and interest.
If a taxpayer does not respond to the CP59 notice, the IRS will send a Notice of Deficiency and propose a tax assessment, giving the taxpayer 90 days to file a past-due return or file a petition in Tax Court. Failure to do so will result in the IRS moving forward with the proposed assessment. This can lead to further collection action, including wage levies or federal tax liens. Taxpayers who receive a CP59 notice should consult with a tax adviser on their next steps.
To avoid CP59 issues, taxpayers should retain proof of filing, such as e-file confirmation forms or certified mail return receipts if paper filing. Keeping copies of filed tax returns and supporting documentation is also important. If the IRS has issued an identity protection number, it should be provided to the tax preparer to avoid rejection of e-file. Abrahms, a CPA, also notes that taxpayers facing penalties for non-filing may be eligible for abatement, especially in cases of illness, document loss due to disasters, or other extenuating circumstances.
The IRS is intensifying its enforcement efforts against high-income individuals, large corporations, and complex partnerships. The agency is targeting millionaires who have not paid their tax debts, as well as conducting audits on large partnerships, including hedge funds and law firms, using artificial intelligence. Ongoing efforts to recoup taxes owed by wealthy individuals have resulted in the collection of $482 million from 1,600 millionaires, with further actions planned in this area. Abrahms emphasizes the importance of proper record-keeping and compliance to avoid running afoul of the IRS and facing penalties for non-filing.
