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Handling a Failure to File Notice

Although millions of individuals diligently fulfilled their civic duty by filing their tax returns, there are some who have not. Here is your warning that IRS is attacking their backlog and they are starting with high-income earners who have not filed a tax return.

In an ongoing effort to ensure tax compliance and fairness, the IRS has announced a new initiative targeting high-income taxpayers who have failed to file federal income tax returns. Under this initiative, more than 125,000 compliance letters have been sent out to individuals who have not filed tax returns since 2017. These letters are not arbitrary; they are based on third-party information, such as Forms W-2 and 1099s, indicating income received by these individuals within certain income brackets.

Specifically, over 25,000 letters were dispatched initially in March 2024 to those with incomes exceeding $1 million, while over 100,000 are being sent to individuals with incomes ranging from $400,000 to $1 million for the tax years 2017 to 2021.

About 20,000 to 40,000 letters have been going out each week, beginning with the filers in the highest-income categories. If you have not filed a tax return since 2017, then yours may be coming!

How to Handle the Notice

Receiving one of these notices, formally known as the CP59 notice, can be alarming. The key is to not ignore the notice, but to take immediate action. Ignoring the notice can lead to additional follow-up notices, higher penalties, and stronger enforcement measures. Such enforcement measures can include a levy on wages or a bank account or the filing of a federal tax lien.

Additionally, the failure-to-file penalty can accumulate at a rate of 5% of the owed amount per month, reaching up to 25% of the total tax bill. To mitigate these penalties, it’s essential to address the issue swiftly and accurately. Furthermore, the IRS is not aware of your potential tax credits and deductions for which you may be eligible, thereby potentially reducing your amount of tax owed.

For those who repeatedly fail to respond to IRS notices and remain non-compliant, the IRS can escalate enforcement actions, including collection, audit, and potential criminal prosecution. In some cases, the IRS may file a Substitute for Return (SFR) on behalf of the taxpayer, calculating taxes owed based on reported income from employers and financial institutions. However, this substitute return may not account for individual deductions and exemptions, potentially resulting in a higher tax bill for the taxpayer.

Therefore, taxpayers in this situation are strongly advised to consult with a trusted tax professional to promptly file their late tax returns and settle any outstanding tax, interest, and penalties. Responding promptly to IRS notices and filing overdue tax returns is crucial to avoiding further penalties and legal consequences. Even if the IRS prepares a substitute return, it’s in the taxpayer’s best interest to file their own return to ensure accurate taxation and take advantage of available deductions and credits.

Ultimately, the IRS’s initiative to target high-income non-filers is part of a broader effort to enhance tax compliance and fairness within the tax system. By addressing non-compliance among high-income taxpayers, the IRS aims to uphold the integrity of the tax system and ensure that everyone contributes their fair share.

If you’ve received an IRS notice and need professional assistance, contact Saunders Tax & Accounting at www.SaundersTax.com or call us at 301-714-2071. Open Monday – Thursday 9 am to 5 pm. Awarded the Hagerstown Chamber of Commerce “2023 Small Business of the Year” and Hagerstown Hotlist 2024, we have been providing a Less Taxing Life and More Prosperous Solutions for 40 years!

Comments

Patricia M Campbell 1932-2024

Pat graduated from Fannett Township High School in 1950 and received her BA in Education from, known then as, Shippensburg State Teachers College. .

James Patrick McNally III 1947-2024

James was known for his dedication and excellence in his professional career, where he made lasting contributions and built strong relationships with his colleagues.

Brenda Jackson Liu 1945-2024

Upon retirement, Brenda worked as a part-time nurse at the Migrant Health in Gettysburg. During this time she traveled to migrant camps all over Pennsylvania.

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