IRS Focuses Tax Collection Efforts on High-Income Taxpayers

 Posted on March 19, 2024 in Taxation Law

During tax season, which occurs from the beginning of each year until the date that annual tax returns are due (most commonly April 15th), many taxpayers are focused on collecting their financial information and filing the proper forms with the Internal Revenue Service (IRS). While failing to file tax returns can result in penalties, some taxpayers fail to do so because they may owe taxes, because they have failed to file forms correctly in the past, or because they are unsure about their obligations. 

Due to budget cuts, the IRS has not taken extensive action to address unfiled tax returns over the past several years. However, due to an increase in funding after the passage of the Inflation Reduction Act in 2022, the agency is now taking action to ensure that taxpayers meet their legal obligations. These efforts will focus on high-income taxpayers, who may be contacted by the IRS and informed of delinquent tax returns that must be filed. Taxpayers who are concerned about potential penalties can work with an attorney to understand their requirements and the steps they can take to minimize their financial losses.

Taxpayers May Receive Letters From the IRS

The IRS is currently focusing on individual taxpayers with high incomes, while also performing tax audits for large corporations and partnerships. It will be notifying taxpayers who have unfiled tax returns for 2017 or later. The agency has noted that letters are being sent to address around 100,000 unfiled tax returns for people with annual incomes between $400,000 and $1 million. An additional 25,000 cases involve taxpayers with annual incomes over $1 million.

These notices will inform taxpayers that they should take immediate action to meet their obligations. Those who fail to file tax returns as required may face tax audits and further enforcement actions. Failure-to-file and failure-to-pay penalties may apply, and in some cases, taxpayers may be subject to criminal prosecution. 

The IRS has also noted that it has the authority to file a Substitute for Return (SFR) on a taxpayer’s behalf based on information reported to the agency about a taxpayer’s income through forms such as W-2s and 1099s. An SFR may allow the IRS to garnish a person’s wages or levy money from their bank accounts to collect the taxes and penalties owed. With SFRs, taxpayers will usually have a higher tax liability, since they will not be able to claim the deductions and exemptions to which they are entitled. To avoid this, a taxpayer may respond to the IRS after receiving a notification of an unfiled tax return and take the proper steps to file returns as required.

Contact Our San Jose Tax Lawyer

If you have received a letter from the IRS stating that you have unfiled tax returns, or if you may potentially face a tax audit, addressing these issues correctly is crucial. At John D. Teter Law Offices, our San Jose, CA tax law attorney can provide guidance on the best ways to respond to the IRS, and we can also provide representation during audits and help you take steps to reduce the potential penalties that may apply in your case. To learn how we can assist with these and other tax-related issues, contact us at 408-866-1810 and arrange a consultation.