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New penalty relief for nearly 5 million 2020 and 2021 pandemic-related tax return collection notices

Posted on February 26, 2024

Due to the unprecedented financial effects of the COVID-19 pandemic, the IRS temporarily suspended the mailing of automated reminders to pay overdue tax bills starting in February 2022.

Additionally, the IRS has announced it will be providing about $1 billion in penalty relief. Individual taxpayers receiving the penalty relief make under $400,000 a year, with 70 percent making under $100,000 per year.

Although IRS overdue reminder notices were suspended from 2020 to 2022, the failure-to-pay penalties continued to accrue for taxpayers who did not fully pay their bills in response to the initial balance due notice.

  • To help taxpayers as the normal processes resume, the IRS will be issuing a special reminder letter starting next month.
  • The letter will alert the taxpayer of their liability, easy ways to pay and the amount of penalty relief, if applied.
  • This penalty is usually 5 percent of the tax owed for each month or part of a month that the tax return is late, up to 25 percent.
  • The IRS urges taxpayers who are unable to pay their full balance due to visit gov/payments to make arrangements to resolve their bill.

If you find yourself in this last category, the CPAs at Teipen CPA Group can help guide you through the repayment process, or filing for an extension.

The IRS is also taking steps to waive the failure-to-pay penalties for eligible taxpayers affected by this situation for tax years 2020 and 2021. There are approximately 5 million tax returns — filed by 4.7 million individuals, businesses, trusts, estates, and tax-exempt organizations – who may be eligible for this penalty relief.

As a first step, the IRS has adjusted eligible individual accounts and will follow with adjustments to business accounts in late December to early January, followed by trusts, estates and tax-exempt organizations in late February to early March 2024.

This penalty relief is automatic. Eligible taxpayers don’t need to take any action to get it.

  • Eligible taxpayers who already paid their full balance will benefit from the relief, too.
  • If a taxpayer 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.

The 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 who are not eligible for this automatic relief 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. Visit IRS.gov/penaltyrelief for details.

Help for taxpayers needing assistance
The IRS reminds taxpayers that there are a number of payment options and online tools that can help taxpayers with unpaid tax debts, whether it’s a new tax bill or a long-standing tax debt for an unfiled return. The IRS also encourages taxpayers to get an IRS Online Account, where they can see information about an unpaid tax bill or apply for an online payment plan.

Resumption of collection notices began in January 2024

This reminder letter will alert the taxpayer of the liability and will direct them to contact the IRS or make alternative arrangements to resolve the bill. Tax professionals and taxpayers will see these reminder letters in the form of letter LT38, Reminder, Notice Resumption.

The IRS urges taxpayers to carefully read any letter or notice they receive before calling the IRS. There are also important resources available to get help for tax debt on IRS.gov or by contacting their CPA for help.