You haven't filed a tax return in years and nothing has happened---yet!
The IRS continues to ramp up efforts to improve tax compliance and ensure fairness within the tax system. As part of that effort, the IRS announced in early March that they have begun focusing on high-income taxpayers who have failed to file federal income tax returns since 2017.
The new initiative, due in part by funding from the Inflation Reduction Act, began with the IS sending letters to more than 125,000 taxpayers who have not been heard from. The IRS develops this lead information from third party reporters---such as employers filing W-2's or brokerages filing 1099B's---indicting that the taxpayers had received income in the "required to file a tax return" range, but a tax return is lacking.
The initial notice is often a notice called a CP59 letter which asks the taxpayer to review their obligation to to file a tax return and respond appropriately either with a tax return or a form which states that no return is required. If you receive such a letter, you should carefully consider your response after an informed analysis of the tax year they are inquiring about.
Lost tax forms and incomplete records are not excuses that the IRS will accept for failing to file a return or failing to respond to an inquiry. A lack of response to the IRS will likely be deemed as a bad sign and an increase in enforcement pressure will ensue.
The best strategy--be proactive. If you have not filed your tax returns, gather the information needed and make a plan to get into compliance. That plan may include contacting a tax professional who can not only help you file the missing returns, but can help you obtain the necessary records to file an accurate return.
Penalties and interest can add a tremendous amount of financial burden on you if you wait to file. Get an idea of what you owe and work out a plan to get out of the hole and back on track before the next round of letters and enforcement includes your name and address.
Kevin Rego
650-933-5222
Disclaimer: The information provided is intended to provide a general overview of the topic presented. It is not intended to be a legal interpretation of your individual tax or legal situation. If there is a conflict between the information provided and any legal authority implementing or interpreting the topic, the legal authority shall prevail. Always seek legal advice from a licensed attorney. This article does not in any way establish an attorney-client relationship. That relationship can only be accomplished with both parties signing a mutual, written agreement.
