High Income Non-Filer IRS Compliance Campaign Update: Notice CP-59 With International Tax Compliance Focus
On February 29, 2024, the IRS announced a major update to one of its compliance campaigns that focuses on high income non-filer taxpayers. Let’s discuss this major update to the High Income Non-filer IRS Campaign in more detail.
High Income Non-Filer IRS Campaign: Background Information
As part of its extensive tax enforcement planning in the mid-2010s, the IRS decided to restructure LB&I in a way that would focus the division on issue-based examinations and compliance campaign processes. The idea was to let LB&I itself decide which compliance issues presented the most risk and required a response in the form of one or multiple treatment streams to achieve compliance objectives. The IRS came to the conclusion that this was the most efficient approach that assured the best use of IRS knowledge and appropriately deployed the right resources to address specific noncompliance issues.
The first thirteen campaigns were announced by LB&I on January 13, 2017. Since then, there have been numerous campaigns announced by the IRS with a focus on various priority topics. The most recent wave (during the years 2023 and 2024) of the IRS campaigns is due to the additional funding that the Congress allocated to the IRS as part of the Inflation Reduction Act.
This very much applies to High Income Non-Filer Campaign. Without adequate resources, the IRS non-filer program has only run sporadically since 2016 due to severe budget and staff limitations that did not allow to properly work on these cases. With the new Inflation Reduction Act funding available, the IRS has now upgraded and essentially re-launched this campaign.
High Income Non-Filer IRS Campaign: Focus on US international Tax Compliance
Even if you did not read the description of the IRS campaign, the very fact that the Director of the Withholding & International Individual Compliance Practice Area is in charge of this campaign gives away the focus on US international tax compliance. Moreover, the emphasis is on individuals with potentially high income, not businesses.
Indeed, High Income Non-Filer IRS Campaign focuses on individuals who have not filed their US tax returns even though they have received high (including foreign-source) income in the past. The very first phrase of the campaign’s description states: “U.S. citizens and resident aliens are subject to tax on worldwide income”. The campaign, however, applies to all high-income non-filers, not just those who did not report their foreign income.
High Income Non-Filer IRS Campaign: IRS Targets 125,000 Noncompliant Taxpayers
It is very interesting to note that this campaign begins with direct targeting of known individuals — the IRS already identified 125,000 taxpayers that the agency wishes to contact. In other words, this is a well-planned campaign with the IRS already knowing who it wants to target.
Where did the IRS get the information about these taxpayers? Mostly, IRS has received third-party information – such as through Forms W-2 and 1099s – indicating these people received high income. Additional information the IRS received from foreign banks and other sources.
High Income Non-Filer IRS Campaign: CP-59 Notice
The IRS has launched the new compliance effort with the IRS CP-59 Notice letters. The letters already started to go out focusing on taxpayers who have not filed their tax returns since 2017. The mailings include more than 25,000 notices to taxpayers with more than $1 million in income and over 100,000 notices to taxpayers with incomes between $400,000 and $1 million between tax years 2017 and 2021.
Not all letters will go out at the same time. The IRS plans to mail anywhere between 20,000 to 40,000 letters each week, beginning with the filers in the highest-income categories. The IRS noted that some of these non-filers have multiple years included in the case count so the number of taxpayers receiving letters will be smaller than the actual number of notices going out.
High Income Non-Filer IRS Campaign: FBAR Noncompliance Is Also Targeted
This campaign has one very unpleasant side-effect. In many cases, behind income tax noncompliance, there are likely unreported foreign accounts that needed to be disclosed on FBARs and perhaps even Form 8938. This circumstance can turn the case into something a lot more serious beyond just income tax noncompliance.
High Income Non-Filer IRS Campaign: What to Do If You Receive CP-59 Notice
The first thing to do is not to panic and not to procrastinate. You should take the next step very fast in order to avoid follow-up notices and a full audit with potentially severe consequences.
The second step is to contact immediately Sherayzen Law Office for professional help, especially if your noncompliance involves large amounts of income and US international information returns, such as FBAR or Form 8938. We will analyze the facts of your case, estimate your potential IRS penalty exposure and advise on the way to move forward to deal with the situation.
High Income Non-Filer IRS Campaign: IRS Actions Escalate If Tax Returns Are Not Filed
Taxpayers who fail to respond to the IRS notices will first receive additional notices. If still no response, the IRS enforcement efforts will escalate to an audit, filing of an unfavorable Substitute for Return (SFR) (without any proper deductions or exemptions), collection actions, a petition to Tax Court and even potentially criminal prosecution.
Contact Sherayzen Law Office if Your Receive Notice CP-59 Concerning Unfiled Returns
If you are a taxpayer who has not filed his tax returns and you receive an IRS Notice CP-59, contact Sherayzen Law Office for professional help. We have helped high-net-worth individuals with their US domestic and US international tax compliance as well as audits of their US tax returns. We can help you!
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