Why You May Get a Letter From the IRS
Audio version available here:
Length: approx. 1 min. 45 sec.
If you receive a letter from the IRS in the coming weeks, you may be part of the IRS’s recent effort to hold wealthy taxpayers accountable for their tax obligation. Since 2017, thousands of high-income taxpayers have failed to file and pay their tax obligation. Now, armed with increased funding from the Inflation Reduction Act, the IRS aims to collect.
“20,000 to 40,000” compliance letters are being sent out weekly. More than 25,000 of the letters will be sent to those with “more than $1 million in income”, while over 100,000 more will be sent to “people with incomes between $400,000 and $1 million”. These are for tax years between 2017 and 2021.
How does the IRS know who to target? Primarily through third-party reporting, like a W-2 or 1099. If the IRS receives a W-2 indicating a person has earned thousands of dollars in wages but fails to receive a corresponding tax return reporting that same income, then it may suspect the person of tax evasion.
Those who receive compliance notices should take action immediately, as penalties and interest have likely been accruing since before the IRS sent the letter. First, consult with a trusted tax professional. Then, file your tax return and pay your tax obligation, as well as any related penalties and interest.
If after sending multiple notices with no resulting tax return filed and paid, the IRS may take further action, “including collection and audit action as well as potential criminal prosecution”. Worse yet, the IRS may file a substitute tax return for you, which would not take into account any deductions or credits you may be entitled to claim.
This matter can have serious consequences if not taken seriously and not resolved promptly. If you are worried that you may be targeted, or if you have already received an IRS letter, don’t hesitate to reach out to the XQ CPA team for the right guidance. Our tax experts are here to help you.
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