IRS Issues Another Tax Warning for Wealthy, High Earners
Wealthy non-filers could pay more tax than they owe if the IRS files for them.
It’s not only millionaires that the IRS has its sights set on this tax season. If you make at least $400,000 — and haven’t filed federal tax returns — you may receive a compliance letter from the agency. This new initiative focused on wealthy non-filers is part of the IRS’ ongoing efforts to improve tax enforcement for millionaires and other high earners and ensure fairness in the federal tax system.
“If someone hasn’t filed a tax return for previous years, this is the time to review their situation and make it right,” IRS Commissioner Danny Werfel said.
The more than 125,000 high-earning non-filers on the IRS’ mailing list might want to take Werfel’s advice. If wealthy non-filers ignore a compliance letter to file past tax returns (CP59 notice), the IRS could take further actions, including creating a substitute tax return.
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Here’s what you should know.
IRS tax enforcement if you fail to file
Not filing your federal tax return by the due date each year is considered tax evasion by the IRS. The agency is now looking all the way back to 2017 and has identified more than 125,000 high earners who have failed to file returns. Most of these 'wealthy tax cheats' make between $400,000 and $1 million a year.
The agency is sending between 20,000 and 40,000 compliance letters to these non-filers each week. If recipients of these notices don’t take action, the IRS will step up its enforcement efforts.
- Non-filers could be subject to an IRS audit.
- Failing to file back tax returns could lead to further IRS collection efforts, including wage garnishments and levies.
- The IRS might create a substitute for return (SFR), which often results in owing more tax than you would if you filed yourself.
What happens if the IRS files a substitute for return? The IRS can use your W-2s, 1099s, and information from your financial institutions to file your tax return for you. When this happens, you’ll miss out on claiming any tax deductions and credits you’re entitled to. So, it’s in your best interest to speak with a tax professional and file prior-year tax returns as soon as possible.
File back taxes
Filing back taxes now could prevent you from facing the unwanted consequences listed above. And because penalties will continue to accrue, the sooner you file, the more money you will save.
- The failure-to-file penalty is 5% of the amount owed every month (up to 25% of your tax bill).
- The IRS charges interest on failure-to-file and failure-to-pay penalties.
Taxpayers making less than $400,000 per year are also subject to substitutes for returns, penalties, interest charges, audits, and levies. So, it’s important to file back taxes and “make things right,” as Werfel says, whether or not you are wealthy.
Taxpayers who haven’t filed prior-year returns can visit the IRS’ Filing Past Due Returns page for information about how to file prior returns and avoid additional consequences and fees.
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