IRS Penalty Relief Program but back to Business as Usual

Taxpayers who owe the IRS automatically receive notices regarding the outstanding taxes. However, due to the effects of the pandemic, in February 2022, the IRS suspended the mailing of these automated reminders to taxpayers to pay the delinquent taxes owed for 2020 and 2021. Although the notices were not sent, the failure to pay penalty continued to accrue on the outstanding balance owed by the taxpayer.

The IRS announced a penalty relief program, which will begin this month, for taxpayers who owe taxes for years 2020 or 2021 and were not sent automated balance due notice reminders during the pandemic. The program will be available to individuals, businesses, trusts, estates and tax-exempt organizations.

In order to qualify for the program, the taxpayer must owe less than $100,000 in tax and must have filed form 1040 (individuals), 1120 (businesses), 1041 (estates/trusts) or 990-T (exempt organizations). The penalty relief only applies to tax years 2020 and 2021. Additionally, the taxpayer must have been in the collection notice process or must have been issued an initial balance due notice between February 5, 2022 and December 7, 2023.

The penalty reduction is automatic for taxpayers who qualify. The IRS began making adjustments to the balances owed by individuals in December 2023. The adjustment to amounts owed by businesses began in late December and will continue into January 2024. Adjustments to amounts owed by trusts, estates and tax-exempt organizations will begin in late February 2024 and continue into March 2024. The IRS will begin issuing balance due notices to taxpayers in January 2024. These notices will reflect the penalty reduction and provide the taxpayer with options to pay the balance due. The failure to pay penalty will resume on April 1, 2024 for taxpayers who owe a balance and do not pay in full.

Taxpayers who qualify for the penalty relief, but have already paid the full balance owed for 2020 or 2021 including the failure to pay penalty, will also benefit from the program. These taxpayers will receive a refund from the IRS for the penalty paid. If the taxpayer owes other taxes, the amount will be credited to the taxes owed. The first round of refunds to taxpayers who qualify for the refund began in mid-December 2023. Refunds will continue to be made through January 2024.

Anyone with questions regarding the penalty relief program can contact the IRS beginning after March 31, 2024.

The IRS has also announced that it is now back to business as usual. This month, the IRS will begin sending automated collection notices to individuals who owe taxes for years prior to 2022, and to businesses, estates, trusts and tax-exempt organizations who owe taxes for years prior to 2023. There is an exception for those who owe taxes for multiple years. Individuals who owe taxes for 2022, and businesses who owe employment taxes for the first three quarters of 2023, began receiving automated notices in late 2023.

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