The Internal Revenue Service (IRS) has announced a new initiative aimed at high-income taxpayers who have not filed federal returns since 2017.
The agency will begin sending letters to these "non-filers" this week, with the initial round targeting those with earnings ranging from $400,000 to over $1 million.
Previously referred to as CP-59 notices, these letters will be dispatched to an estimated 20,000 to 40,000 non-filers weekly, as per the plan revealed on Thursday. The IRS has urged recipients to act promptly to prevent further letters, increased penalties, and more stringent enforcement measures. Non-filers can find additional information about overdue returns on the IRS website.
IRS Commissioner Danny Werfel, during a press briefing, urged non-filers to rectify their situation. "If someone hasn't filed a tax return, this is the time to make it right," he said. Werfel also mentioned that due to staffing issues, the non-filer program has been inconsistently operational since 2016.
The penalty for failing to file is 5% of the owed amount per month, with a maximum limit of 25% of the total tax bill, as per IRS regulations. An additional interest-based penalty is also applicable, calculated based on the current interest rate.
The IRS has recommended non-filers to consult with a tax professional to file overdue returns and compute taxes owed, penalties, and interest.
This latest initiative coincides with the IRS's efforts to reverse the "historically low audit rates" of large corporations, complex partnerships, and high-income earners. The audit rate for taxpayers earning $1 million or more was a mere 0.7% in 2019, a significant drop from 7.2% in 2011, as reported by the IRS.
While the exact amount the IRS expects to recover through the revamped non-filer program is uncertain, the agency estimates that there could be "hundreds of millions of dollars" in unpaid taxes from these cases. "This is a very material amount of money that is being left on the table," Werfel stated on Thursday.
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