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IRS to Waive $1 Billion in Late Payment Penalties for Certain Taxpayers

S.J. Steinhardt
Published Date:
Dec 20, 2023

The IRS will waive nearly $1 billion in late-payment penalties for approximately 4.7 million individuals, businesses and tax-exempt organizations that were not sent automated collection reminder notices during the COVID-19 pandemic.

Most of those affected make less than $400,000 a year. The waiver applies to taxpayers who owe less than $100,000 in taxes for 2020 or 2021 and who received an initial balance due notice between Feb. 5, 2022, and Dec. 7, 2023. The relief expires for debts not paid by April 1, 2024.

The IRS estimated that 5 million tax returns are eligible.

The IRS temporarily suspended the mailing of automated reminders to pay overdue tax bills for tax years 2020 and 2021 starting in February 2022. Despite the suspension, the failure-to-pay penalty continued to accrue for taxpayers who did not fully pay their bills in response to the initial balance due notice.

"As the IRS has been preparing to return to normal collection mailings, we have been concerned about taxpayers who haven't heard from us in a while suddenly getting a larger tax bill. The IRS should be looking out for taxpayers, and this penalty relief is a common-sense approach to help people in this situation," IRS Commissioner Daniel Werfel said in the statement. "We are taking other steps to help taxpayers with past-due bills, and we have options to help people struggling to pay."

The move is unprecedented, tax preparers told The Wall Street Journal.

“This is a gift,” said Jim Buttonow, a certified public accountant in Summerfield, N.C., who worked in IRS compliance for nearly two decades. The fact that you didn’t get a notice wouldn’t be reasonable cause to get penalty relief normally, he said, according to the Journal.

Eligible taxpayers will receive a special notice in late December to early January reflecting their new balances due, the IRS said. Those who already paid these penalties will get a refund or credit on their IRS account as early as this week, Werfel said, the Journal reported.

The IRS will resume sending collection notices and letters in January 2024 to individuals with tax debts prior to tax year 2022, and businesses, tax exempt organizations, trusts and estates with tax debts prior to 2023, with exceptions for those with existing debt in multiple years. These notices and letters were previously paused due to the pandemic and high inventories at the IRS but will gradually resume during the next several months. Current tax year 2022 individual and third quarter 2023 business taxpayers began receiving automated collection notices this fall as the IRS took steps to return to business as usual.

The agency is still sending notices of federal tax liens in limited cases and passport-revocation letters for taxpayers who owe more than $59,000, the 2023 threshold, the Journal reported. Revenue officers are working cases, including giving priority to high-income, high-wealth collection cases, targeting taxpayers with more than $250,000 in debt, the IRS said, according to the Jouranl.

The IRS offers taxpayers 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 wants to help taxpayers and provide them easy options to deal with unpaid tax bills and avoid additional interest and penalties," said Werfel. "People receiving these notices should remember that there are frequently overlooked options that can help them set up an automatic payment plan or catch up with their tax filings. Making additional improvements in the collection area will be an important focus for the IRS going forward as we continue and accelerate our transformation work."

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