The IRS is continuing to expand its efforts to collect from high-income individuals who are not fulfilling their tax obligations by sending out compliance letters in more than 125,000 cases where a taxpayer did not file a return between 2017 and 2021. The efforts are focusing on cases where the IRS received third-party information, including Forms W-2 and 1099, indicating that these people earned at least $400,000 in income, but have not filed returns.
The third-party information the IRS has collected on these taxpayers indicates financial activity of more than $100 billion, and more than 25,000 of them earned more than $1 million. Even if it applies conservative estimates, the IRS believes it will recoup hundreds of millions of dollars in taxes.
The IRS plans on sending 20,000 to 40,000 compliance alerts each week for failure to file a tax return (CP59 notice), beginning with the highest-income categories. Since some of these filers have not filed for several years, some taxpayers will receive more than one alert. As a result, the number of taxpayers receiving alerts will be smaller than the total number sent.
Individuals receiving these notices are urged to take immediate action, including consulting with a trusted tax professional, before the IRS issues additional notices, applies additional penalties and charges interest on the unpaid amounts.
Part of a continued crackdown on high-income noncompliance
The compliance letters are a demonstration of the agency’s continuing resolve to increase compliance among high-income taxpayers using funding the IRS received under the Inflation Reduction Act of 2022. The IRS has already collected nearly $500 million as part of its ongoing efforts to recoup the taxes owed by 1,600 millionaires. Other high-profile initiatives include:
- Audits of aircraft usage by large corporations, large partnerships and high-income taxpayers to ensure that any personal use has been properly allocated
- Partnership self-employment tax initiative to ensure the tax is properly reported and paid by wealthy individual partners who provide services to their firms but claim to be limited partners exempt from paying it
- Pursuing ongoing discrepancies on the balance sheets of partnerships with more than $10 million in assets, which is often an indicator of non-compliance
- Increasing audits of the 76 largest partnerships and using artificial intelligence to identify high-risk issues and properly allocate resources
- Cracking down on foreign companies with U.S. subsidiaries using transfer pricing rules to engineer improper losses
- Expanding the large corporate compliance program by using data analytics to identify large corporate taxpayers for audits
The IRS’s recent compliance initiatives are helping it keep pace with the increasingly complicated tools taxpayers are using to shelter their income after the agency has suffered more than a decade of budget cuts.
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