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Expanded Budget Leads to Wealthy Non-Filers Being Targeted by the IRS

Apr 16, 2024 | Blog, Uncategorized

Although most people view filing taxes as a necessary task each year, virtually any Internal Revenue Service tax attorney would agree that failing to file a return is something certain individuals attempt each year. Such individuals may be surprised this tax season if they are unaware of the new measures recently announced by the IRS to enforce penalties against non-filers.

Last month, the IRS announced new initiatives designed to target higher income- filers who fail to submit their returns, specifically those earning more than $400,000 annually.  Several of our clients have already received such letters.

Specific Income Brackets Targeted by Uncle Sam

According to tax lawyers in San Jose, the IRS has not only launched new initiatives, but also has a specific number in mind for certain income brackets. They plan to target at least 25,000 non-filers making more than $1 million per year, and over 100,000 non-filers who earn $400,000 to $1 million annually. The IRS is focusing on households that failed to file taxes from 2017 to 2021.

Inflation Reduction Act of 2022 Played Pivotal Role in New Initiatives

The Inflation Reduction Act of 2022 has played a vital role in the creation of the new initiatives. Over the next decade, $80 billion in funding will be released, and the expanded budget has made it possible for the IRS to beef up their staff and begin mailing notices to non-filers again. Approximately 7,000 new employees have been hired, most of whom will function in the roles of collections, account management, and customer service.

Additionally, new technology acquired by the IRS will also assist them to collect taxes from non-filers in high-income brackets. According to a back-taxes attorney, these new efforts are merely the beginning of larger initiatives that will focus on business partnerships and corporations as well.

In the case of individuals, third-party information has been collected by the IRS indicating that somewhere in the neighborhood of $100 billion may eventually be collected from those who failed to file their returns.

Penalties for Non-Filers and the Importance of Prompt Response 

Those who earned more than $400,000 in any of the targeted years should anticipate notices in the mail. The IRS strongly recommends that all the recipients of such correspondence take immediate action to avoid making the problem worse. It also advises such individuals to immediately file their returns and pay any back taxes, penalties, and interest to avoid additional fees.  If the balance is not manageable, we can help set up installment plans and possible evaluate an offer in compromise.

Possible Consequences for Those Who Fail to Comply

The IRS will continue to contact those who receive correspondence but do not respond, and may also file a Substitute for Return (“SFR”) on behalf of the individual or corporation. This process involves creating a substitute tax return based on data received by the IRS from sources such as employers or banks. The SFR typically includes the overdue taxes plus interest and penalties.  Most times, the SFR is actually higher than taxpayer’s own tax return.

If delinquent filers continue to ignore the correspondence, a levy on bank accounts, a wage garnishment, and a federal tax lien, may come next. Ultimately, some individuals may be vulnerable to criminal prosecution if further enforcement action is necessary.

Danny Werfel, the current IRS Commissioner, stated that noncompliance from those with higher incomes will not be tolerated at a time when millions of honest, hard-working individuals are complying with the agency’s rules and regulations.

Online resources are available for those who may have questions about a notice received. To prevent a worsening situation, anyone who owes back taxes or who has received correspondence from the IRS concerning delinquency should consult with an IRS tax attorney without delay.

IRS will use its expanded budget to target wealthy individuals who fail to file tax returns, specifically those earning between $400,000 and $1 million annually.