Texas Bar Journal • December 2024

Tax Law

Written by Renesha N. Fountain

In 2024, the Internal Revenue Service (IRS) increased its efforts to collect taxes owed by large corporations and partnerships and high-income individuals. The IRS also granted relief to taxpayers affected by Hurricane Beryl and announced voluntary disclosure programs involving the Employee Retention Credit.

IRS Non-Filer Initiative
The IRS launched a non-filer initiative to address compliance issues for high-income taxpayers.¹ Under the initiative, the IRS mailed compliance letters to high-income earners who had failed to file income tax returns since 2017.² The IRS sent 100,000 letters to non-filers with income from $400,000 to $1 million and 25,000 letters to non-filers with income exceeding $1 million for the 2017 to 2021 tax years.³ The IRS used data from W-2 and 1099 forms to identify taxpayers who received income above the threshold levels but did not file returns.⁴

The IRS will send a CP59 notice to the taxpayers, stating that it has no record of their returns.⁵ It is imperative that taxpayers respond to the CP59 notice or the IRS will send more notices and start enforcement action. The IRS could also start an audit, file substitute returns, or pursue criminal prosecution.⁶ Further, taxpayers may lose a refund if they do not file the return within three years of the original due date.⁷

The initiative is a part of IRS efforts to improve compliance by large corporations and partnerships and high-income individuals and ensure fairness in the tax system.⁸ In its Strategic Operating Plan update, the IRS stated that it expects to almost triple audit rates on large corporations with assets exceeding $250 million from 8.8% in 2019 to 22.6% in the 2026 tax year and increase audit rates on large, complex partnerships with assets exceeding $10 million from 0.1% in 2019 to 1% in the 2026 tax year.⁹

Funding received under the Inflation Reduction Act of 2022¹⁰ provided the IRS with the resources needed to focus on enforcing tax laws against high-wealth taxpayers.¹¹

Tax Relief
The IRS announced tax relief to assist individuals and businesses located in more than 60 Texas counties that were impacted by Hurricane Beryl in July 2024.¹² The IRS extended the deadline until February 3, 2025, for eligible taxpayers to file returns and pay taxes originally due from July 5, 2024, to February 3, 2025.¹³ The relief applies to: 1) taxpayers who had valid extensions to file their 2023 returns; 2) quarterly estimated tax payments due on September 16, 2024, and January 15, 2025; and 3) quarterly payroll or excise tax returns due on July 31, 2024, October 31, 2024, and January 31, 2025.¹⁴ The relief does not apply to tax payments related to 2023 individual income tax returns because those payments were due on April 15, 2024.¹⁵

This relief also applies to affected taxpayers with tax filing and payment deadlines previously postponed until November 1, 2024, following severe storms, flooding, tornadoes, and straight-line winds, which occurred in Texas on April 26, 2024.¹⁶

Employee Retention Credit
The IRS announced a second Employee Retention Credit Voluntary Disclosure Program for businesses to resolve erroneous employee retention credits claimed for periods in 2021 and received prior to August 15, 2024.¹⁷ Eligible businesses must apply by November 22, 2024, voluntarily pay 85% of the employee retention credit, comply with any IRS requests for information, and execute a closing agreement. If the business repays the required 85% of the credit by the time the closing agreement is executed, no further penalties or interest are due.

RENESHA N. FOUNTAIN is a partner in the Tax Controversy and Litigation Practice Group in the Houston office of Nelson Mullins Riley & Scarborough. She has extensive experience representing individual and business clients in disputes with federal, state, and local taxing authorities. Fountain is also the chair of the State Bar of Texas Tax Section.