CP59 Notice: How the Inflation Reduction Act Empowers the IRS to Tackle High-Income Non-Filers and Modernize Tax Compliance

In recent years, the Internal Revenue Service has intensified its efforts to improve tax compliance, particularly among high-income individuals who have not filed their tax returns. This initiative has been significantly bolstered by the Inflation Reduction Act, which has provided the necessary funding and resources to target non-filers more effectively. The Service has identified over 125,000 instances since 2017 where high-income taxpayers have failed to file federal tax returns. This group includes more than 25,000 individuals with incomes between $400,000 and $1 million. The IRS’s efforts are part of a broader strategy to close the tax gap, which is the difference between taxes owed and taxes paid on time (projected at $688 billion for tax year 2021).

The “CP59 Notice” is a notice sent out by the IRS to taxpayers who have failed to file a tax return that was due. These notices are sent out annually to taxpayers identified by comparing information the IRS has on file, such as income reported by employers, financial institutions, and other third parties, against the list of filed tax returns. The CP59 Notice plays a critical role in the IRS’s strategy to encourage tax compliance among non-filers. The notice includes instructions for filing a tax return, completing Form 15103 (Form 1040 Return Delinquency), and the options available for taxpayers who believe they are not required to file.

The Inflation Reduction Act has been a game-changer for the IRS’s compliance efforts. The act provides significant funding to the IRS, enabling it to enhance its enforcement activities and modernize its technology and operations. This increased capacity allows the IRS to pursue non-filers more effectively, especially those in the high-income bracket. The funding from the Inflation Reduction Act supports the IRS’s initiatives to issue compliance letters, conduct audits, and implement the Substitute for Return process for persistent non-filers.

Taxpayers who receive a CP59 notice from the Service should know that the notice is merely an initial contact from the IRS to prompt the taxpayer to file their overdue tax return and pay any taxes owed, along with potential penalties and interest. If the taxpayer does not respond to the CP59 notice and subsequent IRS communications, the IRS may take further action such as filing a Substitute for Return (SFR) on behalf of the taxpayer. This can lead to a Notice of Deficiency CP3219N. If the taxpayer neither files the overdue return nor petitions the Tax Court within the 90-day period (150 if outside the United States), the IRS can proceed with the proposed assessment and begin collection actions. These actions can include levies on wages or bank accounts or the filing of a notice of federal tax lien. In some cases, if the IRS determines that there is evidence of tax evasion or other criminal activity, the case could be referred for criminal prosecution.

At Hone Maxwell, LLP we are closely monitoring the IRS’s intensified efforts to address tax compliance, particularly among high-income individuals who have not met their filing obligations. The Inflation Reduction Act has substantially bolstered the IRS’s capacity to enforce tax laws, thereby narrowing the tax gap. We emphasize the importance of proactive engagement with tax obligations and stand ready to assist in navigating the complexities of compliance, particularly in light of the IRS’s renewed focus on high-income non-filers.

Disclaimer: Hone Maxwell LLP articles and blogs are not intended as legal advice. Additional facts, facts specific to your situation or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information herein.

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