The IRS has restarted and expanded its pursuit of people who did not file required federal returns, and it is right to do so. Filing compliance is what the rest of the system rests on. A new report from the Treasury Inspector General for Tax Administration shows that the programs carrying out that pursuit are running with stalled inventory, no agencywide owner, no program-level performance data, and notices that went to thousands of taxpayers who had already filed.
That combination should concern anyone with unfiled returns, because the errors do not run in one direction. Some cases sit untouched for two years. Others produce a notice that should never have been mailed. If you have unfiled returns or have received an IRS nonfiler notice, Whiteford Tax Defense can pull your account transcripts, establish what the IRS actually has on file, deal with the IRS on your behalf, and build a path back to compliance before the agency builds a return for you. Contact us for a confidential case evaluation.
What the report found
TIGTA issued Agencywide Coordination Could Enhance the IRS's Approach to Nonfilers, Report No. 2026-308-047, on August 31, 2026. It assessed the Small Business/Self-Employed Division's approach to nonfilers, with a close look at the high-income nonfiler notice initiative the IRS launched in February 2024.
The scale is not in dispute. The projected gross tax gap for tax year 2022 is $696 billion, of which roughly $63 billion, or 9 percent, is attributed to nonfilers. Potential nonfilers identified through the IRS's Individual Master File screening grew from about 8.8 million for tax year 2015 to about 14.7 million for tax year 2022. Most of that growth, roughly 5.6 million of the 5.9 million increase, occurred in the under-$200,000 income band rather than among high earners.
Against that backdrop, TIGTA found three failures in execution.
Cases froze. 7 billion. Most of those first notices went out in February or March 2024. IRS policy calls for a final notice within eight weeks if the taxpayer does not respond. A hold that the Office of Information Technology had put in place, later compounded by a March 2024 request to delay final notices over resource concerns, stopped the cases from moving through the notice cycle or into any other treatment.
Collection function officials did not identify the cause until the audit was underway. The IRS moved the cases out of first-notice status in March 2026, two years later. 3 million.
Cases queued. Another 10,969 cases involving 8,853 taxpayers, with potential liability around $2.5 billion, had cleared the notice process and were waiting for assignment to Field Collection. There is no guarantee a queued case is ever assigned. TIGTA estimated that working them could produce returns or assessments in 2,962 cases affecting 2,399 taxpayers, worth roughly $90.8 million. By December 31, 2025, the queue had come down about 14 percent, to 9,463.
Nobody owns the program. The Nonfiler Executive Steering Committee, created in 2018 to coordinate nonfiler work across the agency, has not met since September 2020. The 2018 Nonfiler Strategic Plan has never been updated. Officials in both the Collection and Examination functions told TIGTA that neither owns the agencywide nonfiler program. The monthly performance report does not break results out by program, so the IRS cannot say which of its nonfiler tools works best. It reported 657,000 individual returns secured and about $1.2 billion collected in fiscal year 2025, but could not say how much came from any particular program.
TIGTA made six recommendations. The IRS agreed with all six.
Nearly 5,000 taxpayers got a nonfiler notice after they filed
The finding that should worry a compliant taxpayer is the one about people who did nothing wrong.
The IRS issued first notices in 4,918 cases involving 4,748 taxpayers whose returns had been filed on or before the date the notice went out. The returns existed. They had not yet posted to the taxpayers' accounts, so the screening treated the taxpayers as nonfilers. By June 30, 2025 those returns had processed and carried $178.3 million in additional tax due, plus interest and penalties.
The posting delays were not brief. The IRS took more than a year to post the return in 1,433 of those cases. Paper filings account for most of the problem: 3,315 of the 4,918 returns, about 67 percent, were filed on paper, and paper accounted for 1,268 of the 1,433 worst delays, about 88 percent. IRS policy says paper returns should post within 13 days of receipt and electronic returns within three weeks.
One line in the report explains a good deal of this. Submission Processing management told TIGTA that the IRS prioritizes processing returns that generate refunds and does not prioritize returns where tax is due. A taxpayer who files late and owes money is therefore at the back of the queue for processing and at the front of the queue for a delinquency notice.
TIGTA concluded that the IRS compromised the right to quality service under Internal Revenue Code section 7803(a)(3). The consequences are practical as well as procedural. An open filing delinquency can block access to an installment agreement or an offer in compromise, so a taxpayer trying to resolve a balance can find the path closed by a return the IRS already has.
Why this lands hard in the Mid-Atlantic
Federal employment gives this region an exposure the rest of the country does not share. , Maryland, and Northern Virginia corridor holds the densest concentration of federal civilian employees and retirees in the United States, and federal filing compliance is deteriorating.
In a May 2026 review, TIGTA found that the federal civilian delinquency rate rose steadily from fiscal year 2021 through fiscal year 2024, that roughly 50,000 federal civilian employees had failed to file for multiple years, and that the IRS mailed 427,000 one-time notices to current and retired federal employees in May 2025. Between January and July 2025, the staff working that inventory fell from 242 to 121.
The high-income initiative reviewed in the new report reflects the same concentration. Of the cases the IRS monitored, 1,685 involved taxpayers drawing a federal salary or pension and 1,663 involved IRS employees themselves.
For a federal employee or retiree, an unfiled return is not only a tax problem. Failure to file is an enumerated disqualifying condition under the financial-considerations adjudicative guideline, although a clearance decision is a whole-person analysis in which mitigation counts and nothing follows automatically. A delinquency that reaches enforcement can also produce a levy against federal wages or a federal annuity through the Federal Payment Levy Program, which reaches those payments at up to 15 percent. The margin for letting a notice sit is narrower here than almost anywhere else.
The region compounds the problem in a second way. Mid-Atlantic taxpayers routinely live in one jurisdiction, work in another, and run a business incorporated in a third. Someone living in Maryland, working in the District, and holding an interest in a Delaware entity may have three filing obligations for a single year. Reciprocity is the trap here.
The agreements that decide where wage income gets taxed are discrete pairwise arrangements between two jurisdictions, not a regional bloc, so there is no rule that every Mid-Atlantic jurisdiction reciprocates with every other. Pennsylvania and the District, for one pair, do not. Each pair has to be checked, each agreement reaches wages rather than business or investment income, and the map changes.
A federal unfiled year almost always carries unfiled state and local years behind it, and the state authorities run their own programs on their own timelines. C. Office of Tax and Revenue, the Delaware Division of Revenue, and the Pennsylvania Department of Revenue will not wait for the IRS to finish.
The enforcement is growing while the staff running it shrank
The IRS says it will lean on analytics, automation, artificial intelligence, reminder notices, and earlier outreach to find noncompliance sooner. It has reason to. Between January 2025 and January 2026 the agency went from roughly 103,000 employees to roughly 74,000, a 30 percent reduction. The Collection function absorbed a heavy share of it. As of May 2026, the Automated Collection System had lost 1,842 tax examiners and collection representatives, 46 percent of that group. Campus Collection lost 873, or 37 percent. Field Collection lost 1,429, or 40 percent. The supplemental enforcement funding from the Inflation Reduction Act was exhausted as of December 31, 2025.
Fewer people and more automation is a predictable answer to that arithmetic. It also describes precisely the conditions under which the 4,918 erroneous notices happened. An automated screen that treats an unposted return as a missing return produces a notice no human reviewed, sent to a taxpayer who already complied, at a moment when there are 40 percent fewer revenue officers available to sort it out.
Two IRS responses deserve attention here. The agency told TIGTA it will explore using analytics to better prioritize the highest-risk nonfiler populations, and that it will consider routing queued cases to the Automated Substitute for Return program. Both are sensible resource decisions. Both also move cases further from human judgment, which raises the stakes on getting the underlying account data right.
What to do if you have unfiled returns or received a nonfiler notice
Silence is the worst response available. Unlike a balance due, an unfiled return carries no statute of limitations on assessment, so an old year does not age out. Willful failure to file is also a misdemeanor under section 7203, carrying up to a year of imprisonment for each year and, through the general federal fine statute, a fine that can reach six figures. "Willful" carries the weight in that sentence: it means a voluntary, intentional violation of a known legal duty, not forgetting.
- Identify the notice and the year. The report describes CP59 as the first notice for an unfiled individual return, with roughly eight weeks before the CP518 final notice follows. The delinquency notice stream often runs longer than that in practice, so treat eight weeks as the shortest window you may get rather than the full one. Confirm the notice is authentic before acting on it.
- Establish what the IRS actually has. Account transcripts show what posted and when. If you filed, keep the electronic acceptance record, the certified mail receipt, or whatever proof of delivery exists, and expect a paper filing to be the harder case to prove.
- Find every open year, not just the one in the notice. The Automated Substitute for Return program generally works a single tax year at a time even where a taxpayer has several unfiled returns, so one resolved notice does not mean the file is clean.
- Rebuild the records before you file. Wage and income transcripts, bank records, payroll data, bookkeeping files, and prior returns all feed an accurate return. A rushed filing creates a second controversy over deductions, income, or information returns.
- Get the authorization right. Form 2848 has to list the correct forms and periods, and the representative should confirm it posted to the IRS system rather than assume it did.
- Look past the filing issue. Filing resolves the delinquency. The balance survives it, as do the failure-to-file penalty at 5 percent of unpaid tax per month to a 25 percent cap, the failure-to-pay penalty at 0.5 percent per month to the same cap, substitute-for-return assessments, related examinations, and state filings. In months where both penalties run, the failure-to-file penalty is reduced by the failure-to-pay penalty. A failure to file found to be fraudulent runs at 15 percent per month to a 75 percent cap.
A substitute for return is built from what the government can see. It generally excludes deductions, credits, elections, basis, and business expenses that an accurately prepared return would claim, which is why a substitute assessment is so often larger than the real liability. TIGTA made the same caveat about its own numbers: its potential-tax figures ignore deductions and credits a taxpayer might claim.
Why Whiteford Tax Defense
Whiteford's Tax Section handles federal tax controversies at the administrative and judicial levels. Michael March is a partner in the Baltimore office and Co-Chair of the Tax Section.
He has managed civil tax controversies through examination with revenue agents, the IRS Independent Office of Appeals, and the United States Tax Court, and has represented individuals before the Department of Justice in the federal district courts of Maryland, Virginia, West Virginia, Delaware, Florida, and the District of Columbia, including matters involving parallel investigations by the IRS and other federal agencies.
The wider tax team includes a former trial attorney from the Justice Department's Tax Division and lawyers who have handled responsible-person assessments, employment tax disputes, offers in compromise, and federal tax lien litigation.
Nonfiler cases reward that combination. Most resolve quietly through filing and a payment arrangement. A minority carry criminal exposure, and the point at which one becomes the other is not always obvious from the notice. Knowing where that line sits, and having tried cases on both sides of it, changes how the first response gets written.
The firm's Mid-Atlantic footprint matters for the practical half of the work. An unfiled return sits alongside payroll, financing, licensing, and state filings, and those threads are usually local. Whiteford's Maryland offices in Baltimore, Towson, Columbia, and Rockville, its Washington, D.C. office, its Virginia offices in Falls Church, Richmond, Roanoke, and Virginia Beach, its Delaware presence in Wilmington, and its offices in Pittsburgh, New York City, and White Plains let the same team handle a federal matter and the state and local obligations that travel with it.
A second TIGTA report released the same day examined IRS contact with represented taxpayers. If a revenue officer has reached you while your representative was on file, that companion post explains your rights.
Frequently asked questions
I filed my return, but the IRS sent a notice saying I did not. What do I do?
Do not ignore it. TIGTA found 4,918 cases where the IRS issued a first notice to a taxpayer who had already filed, because the return had not yet posted to the account. Pull an account transcript to see what the IRS has, gather your proof of filing, and respond in writing before the response window on a CP59 closes. Paper filers should expect this to take longer to unwind: paper returns made up 88 percent of the cases where posting took more than a year.
How many years of unfiled returns do I have to file?
It depends on the facts, and the answer the IRS gives informally is not always the answer that resolves your exposure. Administrative policy generally looks to the last six years, but that is policy and not law: a manager can approve going back further, and nothing limits the agency's legal authority to require older returns. There is also no statute of limitations on assessment for a year in which no return was filed, so an old year stays open indefinitely. The scope should be settled deliberately, with counsel, before anything is filed.
Is not filing a tax return a crime?
Willful failure to file a required return is a misdemeanor under Internal Revenue Code section 7203, punishable by up to one year of imprisonment for each year and a fine that the general federal fine statute lifts into six figures. The word doing the work is "willful," which means a voluntary, intentional violation of a known legal duty. Most nonfiler cases are civil matters. The risk rises with the number of years, the amount of income, and anything that looks like concealment, which is why it is worth an assessment before you start filing.
What is a substitute for return, and can I still file my own?
If you do not file, the IRS may prepare a return for you under section 6020(b) using third-party information such as Forms W-2 and 1099. It generally gives you single or married-filing-separately status, one exemption and the standard deduction, with no itemized deductions, credits, elections, or basis, which is why the assessment usually overstates what you owe. You can file your own return afterward and request audit reconsideration, the procedural route to correcting the assessment.
Relief is not automatic; you have to substantiate the return you file. Note also that a substitute return is not itself an assessment, so the ten-year collection clock starts only when the tax is actually assessed.
Does an unfiled return stop me from settling what I owe?
Generally yes, though the mechanics differ by remedy. An offer in compromise from a taxpayer with unfiled returns is returned as non-processable rather than rejected, and the distinction matters because a returned offer carries no appeal rights. For installment agreements the filing-compliance requirement is largely administrative, and it is statutory only for the guaranteed agreement available on liabilities up to $10,000. Either way, filing is the gate that has to open before anything else can be negotiated.
I am a federal employee. Does that change anything?
It raises the stakes. Federal filing delinquency has been rising, and the IRS runs a dedicated initiative for current and retired federal employees that mailed 427,000 notices in May 2025. Failure to file is a listed disqualifying condition under the financial-considerations clearance guideline, though adjudicators weigh mitigation and nothing is automatic, and the Federal Payment Levy Program can reach federal salary and annuity payments at up to 15 percent. If you work for the federal government and have unfiled years, treat it as time-sensitive.
Talk to a tax attorney before the next notice arrives
If you have unfiled federal or state returns, received a CP59 or CP518, are facing a substitute-for-return assessment, or believe the IRS contacted you directly while your representative was on file, the useful time to act is before the case moves out of the notice cycle and into collection. Whiteford Tax Defense represents individuals and businesses across Maryland, Washington, D.C., Virginia, Delaware, Pennsylvania, and New York. Contact us for a confidential case evaluation.
This article is general information about federal tax administration, not legal advice, and it does not create an attorney-client relationship. Tax outcomes turn on individual facts.
Sources: Treasury Inspector General for Tax Administration, Agencywide Coordination Could Enhance the IRS’s Approach to Nonfilers, Report No. 2026-308-047 (Aug. 31, 2026), tigta.gov; and Fiscal Year 2026 Statutory Review of Restrictions on Directly Contacting Represented Taxpayers, Report No. 2026-300-048 (Aug. 31, 2026), tigta.gov.