What Happens When the IRS Finds Out You Made $400,000 and Didn’t File Your Taxes
Written by
Martin Dasko
Edited by
Rebekah Evans
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It’s often stated that death and taxes are the only guarantees in life. However, many individuals may be trying to avoid taxes. As you can imagine, the Internal Revenue Service (IRS) isn’t too fond of this and new measures have been announced recently with the revival of the non-filer enforcement program.
The IRS shared a press release on February 29, 2024, announcing a new initiative aimed at high-income non-filers who earned over $400,000 and failed to file a tax return.
This article will examine notices sent out from the Internal Revenue Service (IRS) and the possible consequences for those who receive them.
New Initiative From the IRS
The IRS has announced a new initiative to improve tax compliance and ensure a fair system. The initiative will focus on high-income non-filers, as there are over 125,000 instances of people earning more than $400,000 who have not filed taxes since 2017.
Here’s a breakdown of the notices sent out by the IRS:
- Over 25,000 individuals with more than $1 million in income.
- Over 100,000 to those with incomes between $400,000 and $1 million.
- All individuals failed to file taxes between the tax years 2017 and 2021.
The 2022 Inflation Reduction Act has led to $80 billion in funding over a decade, which has allowed the IRS to hire new staff and start mailing non-filing notices out again. It’s worth mentioning that the non-filer enforcement program was limited in recent years due to budget cuts. The enforcement program had been operating sporadically since 2016 due to cutbacks in this department that led to limited staffing.
The IRS has hired around 7,000 new employees for customer service, account management and collections roles. Since the funding from the IRA 2022, the IRS has also introduced new technology. All of this will assist them in contacting high-income non-filers. According to the press release, the IRS was limited by budget cuts when it came to keeping up with the complicated tools that wealthy individuals have used to shelter their incomes to avoid paying taxes.
The new non-filer effort is the first step in the larger initiative, with the IRS attempting to ensure that large corporations, large partnerships and high-income individuals pay the proper tax amount.
In these cases, the IRS has received third-party information demonstrating that the non-filers received over $400,000 in income without filing a tax return. The information includes Forms W-2 and 1099s. The third-party information would indicate that the total financial activity involved is around $100 billion.
What Happens When the IRS Finds Out You Didn’t File Taxes?
If you earned over $400,000 and haven’t filed your taxes, you should expect to receive a notice in the mail. The IRS has advised everyone receiving the letter to take prompt action to prevent further follow-up correspondence or consequences.
These individuals are encouraged to file a tax return and pay delinquent tax, interest and penalties. The failure-to-file penalty equates to 5% of the amount owed every month up to 25% of the tax bill.
You should consult with a tax professional once you receive the notice. If one ignores the notice, the next section outlines the consequences.
What Are the Possible Consequences?
Those who ignore the non-filer notice will continue to receive correspondence that will lead to additional consequences. The IRS can also file a Substitute for Return (SFR), where they create a substitute tax return for the individual based on wages and income reported to the agency by banks, employers and other sources. This tax return would include the taxes, penalties and interest owed.
It’s likely that the tax return prepared for these individuals will result in a tax bill. If this bill remains unpaid, the collection process will begin.
The collection process can lead to:
- A levy on wages or bank account.
- The filing of a notice of federal tax lien.
If the taxpayer continues to fail to file a tax return, further enforcement actions, including penalties and criminal prosecution, could be taken.
Closing Thoughts
IRS Commissioner Danny Werfel said, “At this time of year when millions of hard-working people are doing the right thing paying their taxes, we cannot tolerate those with higher incomes failing to do a basic civic duty of filing a tax return.”
The IRS has online resources for those who receive a notice and may have questions. To prevent further issues, it’s advised that you consult with a tax professional immediately upon receiving a notice about not filing a tax return.
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