The Inflation Reduction Act of 2022 has allocated $80 billion to the Internal Revenue Service over the next decade, significantly bolstering the agency’s compliance efforts. The IRS has earmarked some of those funds to pursue those earning $400K+ annually who failed to file tax returns between 2017 and 2020.
In February 2024, the IRS sent out letters to an estimated 125,000 non-filers, urging them to file their overdue returns. The initiative is just the beginning of a broader compliance program that will eventually target non-filers across all income brackets.
How Does the IRS Know You Haven’t Filed?
Many people mistakenly believe that if they didn’t file, and the IRS didn’t contact them, they can skip filing this year, too. However, the IRS has two ways of knowing that you haven’t filed.
First, third-party information: If any person or business has filed the required documentation denoting earnings you received from them, such as a W-2 or a 1099 form, the IRS is aware of your earnings. Typically, you will receive a copy of that document when it is filed, but even if you don’t, IRS rules state that it is still your responsibility to disclose any earnings (at or above the filing threshold) on your tax return. Second, the IRS’ own information: If you filed a return in any prior year, the IRS’s computer system looks for your return the next year.
Why Should Non-Filers Come Forward?
Coming forward has several advantages. Firstly, it can result in a reduction in penalties. Non-filing penalties and underpayment penalties often can be negotiated away from the tax due and any interest related to it.
Second, when you do file, you can set up a payment plan with the IRS. If you owe a lot of money and don’t have the ability to pay it in full now, you can arrange a payment plan to pay your debt to the IRS over time.
What Happens If You Ignore the IRS?
Ignoring the IRS can have serious consequences. The IRS has increased its enforcement staff by 5,000 people and will not let go of these cases. It can file a return on your behalf, which will not be the most advantageous for you.
Once the IRS has filed a return for you, the agency can start collections, an effort for which it has the full force of the government’s help. This means the IRS can place liens on your house, seize your bank accounts, and even garnish your wages.
Your Takeaway
If you’re a non-filer, it’s important to come forward and file your overdue returns. Rehmann’s tax advisors are here to help you navigate this process and correct the situation. Ignoring the problem won’t make it go away; it’ll only make the consequences more severe. Connect with a Rehmann Advisor today.