The Internal Revenue Service (IRS) recently unveiled a bold initiative to provide penalty relief to approximately 4.7 million individuals, businesses, and tax-exempt organizations that did not receive automated collection reminder notices during the COVID-19 pandemic. The agency estimates it will provide about $1 billion in penalty relief, with most beneficiaries earning less than $400,000 annually.
This initiative comes in response to the IRS’s temporary suspension of automated collection reminders beginning in February 2022, due to the unprecedented impact of the pandemic. Although these reminders were halted, failure-to-pay penalties continued to accumulate for taxpayers who did not settle their dues after receiving the initial balance due notice.
In preparation for resuming normal collection notices for tax years 2020 and 2021, the IRS is implementing several measures to assist taxpayers who have outstanding bills, including some who haven’t received a notice from the agency in over a year.
From next month, the IRS will begin issuing a special reminder letter highlighting the taxpayer’s liability, payment options, and the potential amount of penalty relief available. The agency encourages those unable to pay their full balance to visit IRS.gov/payments to arrange resolution of their bills.
The IRS also plans to waive failure-to-pay penalties for eligible taxpayers affected by this situation for tax years 2020 and 2021. An estimated 5 million tax returns—filed by 4.7 million individuals, businesses, trusts, estates, and tax-exempt organizations—are eligible for the penalty relief, translating to $1 billion in savings or roughly $206 per return.
The IRS has already begun adjusting eligible individual accounts and will proceed with adjustments to business accounts late December into early January. Trusts, estates, and tax-exempt organizations will follow suit in late February to early March 2024. Notably, nearly 70% of the individual taxpayers receiving penalty relief earn under $100,000 annually.
The IRS is issuing Notice 2024-7 to detail how it’s providing failure-to-pay penalty relief to eligible taxpayers affected by the pandemic. This relief is automatic, requiring no action from eligible taxpayers. Those who have already paid their full balance will also benefit from the relief; if they’ve paid failure-to-pay penalties related to their 2020 and 2021 tax years, the IRS will issue a refund or credit the payment toward another outstanding tax liability.
This penalty relief only applies to eligible taxpayers with assessed tax under $100,000. The failure-to-pay penalty will resume on April 1, 2024, for taxpayers eligible for relief.
Taxpayers not eligible for this automatic relief can still take advantage of existing penalty relief procedures, such as applying for relief under the reasonable cause criteria or the First-Time Abate program. Taxpayers with questions on penalty relief can contact the IRS after March 31, 2024.
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