On Feb. 29, 2024, the IRS announced it would resume its campus nonfiler enforcement programs. IRS campus nonfiler programs have been scarce since 2016 and almost non-existent since the beginning of the pandemic in March 2020.
The IRS will initially target about 2% of the known population of nonfilers. Over the next few months, the IRS will target 125,000 nonfilers who have reported income to the IRS over $400,000 for the 2017-2021 tax years. The IRS will send these taxpayers the initial delinquent return inquiry notice CP59 requesting that they file voluntarily. If they do not file, the IRS will proceed to enforcement by assessing the taxpayer the projected tax owed in their “Substitute for Return” (“SFR”) program. SFRs also include failure to file and pay penalties and accrued interest owed. The IRS stated that these notices have already started to be mailed to taxpayers.
The focus on taxpayers with over $400,000 in income is consistent with recent IRS enforcement priorities. The IRS stated its compliance focus for collection and examination issues will be on wealthier taxpayers. On Jan. 12, 2024, the IRS provided an update on its focus and collection efforts on millionaires who owe back taxes.
Taxpayers and tax professionals should not wait for IRS nonfiler notices to get back into filing compliance with the IRS. The IRS nonfiling enforcement programs are officially back – and high-income taxpayers are just the beginning of more notices to come.
How you can help your client
Tax professionals are a critical service provider for taxpayers who have not filed a required return. The 125,000 initially targeted taxpayers are only a small part of the overall nonfiler population. The Treasury Inspector General for Tax Administration (TIGTA) reports that the IRS nonfiler inventory for 2015-2019 is 50.7 million individual unfiled tax returns. TIGTA also reports that the nonfiler inventory for businesses is over 87 million as of the end of 2022. Many of these taxpayers have a balance owed to the IRS and will need an IRS collection agreement to avoid levies, liens and passport restrictions. Most of these taxpayers will be looking for professional help.
Tax pros are uniquely positioned to help clients with back returns. Not only can tax pros prepare and file the back return. Tax pros can also provide advice on other issues, such as:
Tax years to be filed: IRS Policy Statement 5-133 states that filing compliance for an individual tax filer is the past six years (currently 2018-2023). Interestingly, the IRS announcement calls for 2017 returns to be requested. Tax pros can inquire about what returns are required according to IRS policy. An IRS manager’s approval is typically required to deviate from its policy statement.
Filing an accurate return: When filing back returns, many taxpayers forget all their sources of income. As a result, the IRS may reject or even audit the return. Tax pros can order clients’ unmasked wage and income transcripts from the IRS and prepare an accurate return, ensuring all income reported to the IRS is also reported on the return. This is a must for back return preparation.
Interacting with the IRS: Filing a back return can be as simple as preparing and submitting it to the IRS. However, it is not that simple in many cases. Tax pros can monitor and track the acceptance of the return, which often takes months, especially if the return is paper filed.
Penalty relief: The taxpayer may qualify for reasonable cause or first-time abatement. Tax pros can evaluate and request timely relief from these penalties, often saving the taxpayer thousands.
Collection issues: If the taxpayer owes, the tax pro can help set up a collection agreement with the IRS to avoid enforced collection actions such as liens, levies and passport restrictions. Tax pros can help evaluate the right options, including extensions to pay, payment plans, or any of the hardship options such as not collectible status or the offer in compromise program.
Most of all, the tax pro can provide peace of mind to the client. Dealing with the IRS is stressful for clients, especially if they receive an IRS notice or are under enforcement. A trusted tax professional can help navigate the IRS, get taxpayers back in good standing, and keep them compliant in the future.
About Jim Buttonow, CPA, CITPJim Buttonow, CPA, CITP, has been a leader in helping taxpayers and tax professionals resolve tax problems with the IRS. For 19 years, he worked at the IRS in various compliance enforcement positions. Since 2006, he has been in private practice and tax and accounting software development. Buttonow served as chairperson of the IRS Electronic Tax Administration Advisory Committee in 2015 and 2016 and as the North Carolina representative on the IRS’ Taxpayer Advocacy Panel from 2020-2022. He regularly speaks on areas of tax administration and problem solving to national associations and has testified before Congress in areas of tax administration. He has also published many articles in industry publications, and currently authors CCH’s “Tax Problems and Solutions Handbook,” a publication aimed at helping tax pros work more effectively in post-filing matters and resolving their clients’ most common tax problems. Reach him at Jim.Buttonow@gmail.com or at buttonowcpa.com.
Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.