The Internal Revenue Service (IRS) has recently announced a significant update for taxpayers, providing much-needed relief for those affected by the COVID-19 pandemic. Specifically, the IRS is offering automatic penalty relief for taxpayers who failed to pay their income taxes for the tax years 2020 and 2021. This relief is part of the IRS’s efforts to alleviate the financial burden on individuals and businesses as we emerge from the pandemic’s economic impacts.
Who Qualifies for the Penalty Relief?
To be eligible for this penalty relief, taxpayers must meet the following criteria:
- They must have been assessed income tax for either the 2020 or 2021 tax year, as of December 7, 2023, with the total amount being less than $100,000, excluding any additional penalties or interest.
- They must have received an initial balance due notice (such as Notice CP14 or Notice CP161) on or before December 7, 2023, for the relevant tax year.
- They must have filed an eligible return for the 2020 or 2021 tax year and be liable for accruals of additions to tax for failing to pay under Code Sections 6651(a)(2) or (3) during the specified relief period.
The relief period begins on either the date the IRS issued the initial balance due notice or February 5, 2022, whichever is later, and ends on March 31, 2024. During this time, eligible taxpayers will not be subject to the additions to tax for failing to pay their owed taxes. Furthermore, for those who have already been assessed or paid these additions to tax, the IRS will automatically abate, refund, or credit them against other outstanding tax liabilities.
It’s important to note that this automatic relief does not extend to any penalties, additions to tax, or interest not specifically mentioned, nor does it apply to any returns where penalties for fraudulent failure to file or fraud are applicable.
Resumption of Collection Notices
In addition to the penalty relief, the IRS has announced plans to resume its normal collection procedures, which were paused during the pandemic. Approximately 4.7 million taxpayers did not receive automated collection reminder notices since the IRS suspended these mailings in February 2022. While the reminders were on hold, penalties for failing to pay continued to accrue for those who did not settle their tax bills after receiving the initial notice.
Starting April 1, 2024, the IRS will recommence sending out collection notices to taxpayers with overdue tax bills. The first round of rebates may even be issued as early as January 2024, signaling a return to standard operating procedures for the IRS and a move towards normalization after the pandemic’s disruptions.
What This Means for You
This announcement is a welcome development for taxpayers still recovering from the pandemic’s economic fallout. It provides an opportunity to settle outstanding tax liabilities without the added burden of certain penalties. For those unsure about their eligibility for penalty relief or who have questions about upcoming collection notices, reach out to us. We are here to guide you through these updates and help you understand how they might affect your financial and tax planning strategies.