What to expect after receiving a non-filer compliance alert notice and what to do to resolve

In the continuing effort to improve tax compliance and ensure fairness, the Internal Revenue Service announced a new effort on Feb. 29, focused on high-income taxpayers who have failed to file federal income tax returns in more than 125,000 instances since 2017.

The new initiative, made possible by Inflation Reduction Act funding, begins with IRS compliance letters going out this week. The mailings include more than 25,000 to those with more than $1 million in income, and over 100,000 to people with incomes between $400,000 and $1 million between tax years 2017 and 2021.

About 20,000 to 40,000 CP-59 Notices are anticipated to mail each week, beginning with filers in the highest income categories.

What is the CP 59?

The recently updated CP59 notice is sent when the IRS has no record that a prior personal tax return(s) has been filed. It provides details on what a taxpayer can do to resolve their non-filing status:

  • File their signed, personal tax return immediately or explain why a return is not required.
  • Complete Form 15103, Form 1040 Return Delinquency, included with the notice to explain:
    • Why they’re filing late.
    • Why they don’t have to file.
    • That they’ve already filed.
  • Detach notice stub and mail it with tax return and completed Form 15103 using the envelope provided. They can fax their information to the fax number in the notice using either a fax machine or an online fax service. Taxpayers should protect themselves when sending digital data by understanding the fax service’s privacy and security policies.

Newly revised CP 59 Notice

The IRS continues to implement the recently announced Simple Notice Initiative with the newly, updated CP 59 notice. As part of the larger transformation work taking place at the IRS with Inflation Reduction Act funding, these recent revisions aim to provide simple, clear and easy to understand information and more electronic options to help taxpayers meet their tax filing obligations. Improvements include:

  • Improved content emphasizing instructions on how/where to file, get transcripts, and payment options.
  • QR codes directing taxpayer to information on how to file and options to resolve balance.
  • Reduced number of pages.

Additional information and frequently asked questions can be found on the Understanding Your CP59 Notice page.

IRS actions escalate if tax returns aren’t filed

People receiving these letters should take immediate action to avoid additional follow-up notices, higher penalties as well as increasingly stronger enforcement measures.

In addition to enforcement actions, the following are other reasons to file past due tax returns now:

  • Avoid interest and penalties – File past due return and pay now to limit interest charges and late payment penalties.
  • Claim a refund – Taxpayers risk losing their refund if they don’t file their return. If they are due a refund for withholding or estimated taxes, the taxpayer must file their return to claim it within three years of the return due date. The same rule applies to a right to claim tax credits such as the Earned Income Credit.
  • Protect Social Security benefits – If the taxpayer is self-employed and does not file their federal income tax return, any self-employment income they earned will not be reported to the Social Security Administration and they will not receive credits toward Social Security retirement or disability benefits.

Taxpayers who don’t respond to the non-filer letter will receive additional notices and other actions. Ultimately, this can lead to a variety of IRS compliance activity, including collection and audit action as well as potential criminal prosecution.

Substitute tax return

If a person repeatedly fails to respond and does not file, the IRS may create a substitute tax return for the taxpayer. The IRS calculates this substitute tax return based on wages and other income reported to the agency by employers, financial institutions and others. The return factors in the tax, penalty and interest owed by the taxpayer.

This tax return might not give the person credit for deductions and exemptions they may be entitled to receive because the IRS does not know each taxpayer’s situation.

The IRS will send a Notice of Deficiency CP3219N (90-day letter) proposing a tax assessment. The taxpayer will have 90 days to file their past due tax return or file a petition in Tax Court. If they do neither, the IRS will proceed with the proposed assessment.

If the IRS files a substitute return, it is still in the taxpayer’s best interest to file their own tax return to take advantage of any exemptions, credits and deductions they are entitled to receive. The IRS will generally adjust their account to reflect the correct figures.

Other collection or audit actions

The tax return the IRS prepares for these taxpayers will likely lead to a tax bill, which, if unpaid, will trigger the collection process. This can include such actions as a levy on wages or a bank account or the filing of a notice of federal tax lien. Taxpayers can find out about resources available if they owe a tax debt and can’t pay all or part of it.

If taxpayer repeatedly does not file, they could be subject to additional enforcement measures, such as additional penalties and/or criminal prosecution.

For more information, refer to Taxpayer Bill of Rights, Publication 1, Your Rights as a Taxpayer, Publication 594, The IRS Collection Process, and Publication 1660, Collection Appeal Rights.