IRS Enforcement Campaign Targets High-Income Non-Filers

Recent funding increases through the Inflation Reduction Act (IRA) have revitalized the IRS’s enforcement capabilities.  A new campaign signals this shift, targeting high-income taxpayers who failed to file federal income tax returns.  This initiative represents a strategic pivot for the IRS, prioritizing the pursuit of large, unreported income sources to maximize revenue collection.

The Internal Revenue Service (IRS) has initiated a new enforcement campaign targeting high-income taxpayers who have failed to file federal income tax returns. This campaign focuses on individuals with unreported income exceeding $400,000 annually for tax years 2017 through 2021. The IRS expects this initiative to yield significant recovery of unpaid taxes, along with associated penalties and interest. This effort aligns with the IRS’ broader focus on examining large corporations and high-net-worth individuals.

Key Actions

• The IRS has identified over 125,000 instances of high-income non-compliance.
• Targeted taxpayers will receive CP59 Notices detailing steps for achieving compliance. Those with incomes exceeding $1 million will likely face escalated outreach.
• The IRS will use third-party reported income data (Forms W-2, 1099, etc.) for targeted identification.

Increased Enforcement Capacity

Historically, resource constraints limited the IRS’s consistent pursuit of high-income non-filers. Funding provided by the Inflation Reduction Act (IRA) has bolstered the agency’s capacity, enabling this targeted campaign. The IRS now aims to demonstrate its increased ability to scrutinize taxpayers previously shielded from consistent examination due to underfunding.

Consequences for Non-Compliance

• Taxpayers should respond promptly to CP59 Notices to mitigate further IRS action.
• Non-compliance can result in Substitute for Return (SFR) filings by the IRS, often understating deductions and credits, thus increasing liability.
• Unpaid tax liabilities may trigger collection actions, including wage garnishment, bank levies, or federal tax liens.
• Willful non-filing carries the potential for criminal prosecution.

Strategic Implications

• This campaign signals a shift in IRS priorities, highlighting its ability to pursue high-value cases. Increased funding enables more focused enforcement actions, expanding the IRS’s reach beyond traditional audits.
• The IRS is increasingly using data analytics and third-party reporting to pinpoint areas of potential non-compliance. This approach allows them to focus resources more efficiently, maximizing revenue collection efforts.

Considerations for Clients

• Clients with unreported income may face heightened scrutiny in the coming years, particularly those in higher income brackets.
• Proactive tax planning and strategizing are crucial to mitigate risks and minimize the potential consequences of past non-filing activity.
• Practitioners should familiarize themselves with the options for resolving non-compliance for certain clients. 

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