2024-01-30
IR-2023-244, Dec. 19, 2023
The Internal Revenue Service is providing about $1 billion (about $206 per return) in new penalty relief for approximately 4.7 million individuals, businesses and tax-exempt organizations that were not sent automated collection reminder notices during the pandemic. Most of those receiving the penalty relief make under $400,000 a year, with nearly 70 percent of the individual taxpayers receiving penalty relief have income under $100,000 per year.
Due to the unprecedented effects of the COVID-19 pandemic, the IRS temporarily suspended the mailing of automated reminders to pay overdue tax bills starting in February 2022. 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 who did not fully pay their bills in response to the initial balance due notice.
Given this unusual situation, the IRS is taking several steps in advance of resuming normal collection notices in 2024 for tax years 2020 and 2021 to help taxpayers with unpaid tax bills, including some people who have not received a notice from the IRS in more than a year.
The IRS is concerned about taxpayers who haven’t heard from the IRS in a while suddenly getting a large tax bill, and will issue a special reminder letter starting in 2024, alerting the taxpayer of their liability, easy ways to pay, and the amount of penalty relief, if applied. The IRS urges taxpayers who are unable to pay their full balance due to visit IRS.gov/payments to make arrangements to resolve their bill.
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. As a first step, the IRS has adjusted eligible individual accounts and will follow with adjustments to business accounts in late December 2023 to early January 2024, and then trusts, estates and tax-exempt organizations in late February to early March 2024.
The IRS is releasing Notice 2024-7, which explains how the agency is providing failure-to-pay penalty relief to eligible taxpayers affected by the COVID-19 pandemic to help them meet their federal tax obligations.
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 also benefit from the relief and 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. 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 Feb. 5, 2022, and Dec. 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 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.
If the automatic relief results in a refund or credit, individual and business taxpayers will be able to see it by viewing their tax transcript. The IRS will send the first round of refunds starting now through January 2024. If a taxpayer does not receive a refund, a special reminder notice may be sent with their updated balance beginning in early 2024. Taxpayers with questions on penalty relief can contact the IRS after March 31, 2024.
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.
Following funding from the Inflation Reduction Act, it’s now easier for taxpayers to get assistance with tax bills with new self-help tools, like the IRS Document Upload Tool, improved phone service with callback features and the addition of bots that can answer simple questions, set up or modify a payment plan and request a transcript. 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.