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Starting in February 2022, the IRS suspended the mailing of automated reminders to pay overdue tax bills due to the COVID-19 pandemic. These reminders would have normally been issued as a follow-up after the initial notice. Although these reminder notices were suspended, the failure-to-pay penalty continues to accrue for taxpayers needing to pay their bills in full in response to the initial balance due notice.
The IRS has announced that collection notices will resume in 2024, with some taxpayers already receiving a reminder letter; the agency will continue mailing resumption reminders through March 2024. This communique may surprise some delinquent taxpayers since they may not have heard from the IRS in over a year. The first correspondence will be a special reminder letter alerting taxpayers of their liability, easy ways to pay, and the amount of penalty relief discussed below if applied.
The IRS is taking steps to waive the failure-to-pay penalties for eligible taxpayers affected by this situation for tax years 2020 and 2021. The IRS estimates that 5 million tax returns filed by 4.7 million individuals, businesses, trusts, estates, and tax-exempt organizations are eligible for the penalty relief. This represents $1 billion in taxpayer savings, or about $206 per return.
The relief granted is available only to eligible taxpayers' additions to tax for the failure to pay during the relief period. An "eligible taxpayer" is any taxpayer:
Whose assessed income tax for the taxable year 2020 or 2021, as of December 7, 2023, is less than $100,000, excluding any applicable additions to tax, penalties, or interest;
Who was issued an initial balance due notice on or before December 7, 2023, for the taxable year 2020 or 2021; and
Who is otherwise liable during the relief period for additions to tax for failing to pay a penalty concerning an eligible return for the taxable year 2020 or 2021.
This penalty relief is automatic. Eligible taxpayers don't need to take any action to get it. Eligible taxpayers who have already paid their total balance will also benefit from the relief. If a taxpayer has already 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.
Eligible taxpayers include individuals, businesses, trusts, estates, and tax-exempt organizations that filed certain Forms 1040, 1120, 1041, and 990-T income tax returns for tax years 2020 or 2021 with an assessed tax of less than $100,000 and that were in the IRS collection notice process, or were issued an initial balance due notice, between February 5, 2022, and December 7, 2023. The IRS notes the $100,000 limit applies separately to each return and each entity. The failure-to-pay penalty will resume on April 1, 2024, for taxpayers eligible for relief.
Taxpayers who are not eligible for this automatic relief may also have options. They may use existing penalty relief procedures, such as applying for relief under the reasonable cause criteria or the First-Time Abate program.
If you have an outstanding liability from 2020 and/or 2021, please contact this office for assistance with resolving the debt. For example, we can help you negotiate an installment agreement with the IRS or an offer-in-compromise to settle the debt for less than you owe.