The IRS is giving automatic penalty relief (failure-to-pay penalty) to taxpayers who owe less than $100,000 for tax years 2020 and 2021.

The IRS announced this 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. The IRS states that it expects to be providing about $1 billion in penalty relief to taxpayers. The majority of those receiving the penalty relief make under $100,000 a year.

Why Is The IRS Doing This?

In February 2022, the IRS temporarily suspended the mailing of automated reminders to taxpayers concerning overdue tax bills. These reminders are normally issued as a follow-up to the initial notice of tax due. Although these reminder notices were suspended during the pandemic, the failure-to-pay penalty continued to accrue for taxpayers who did not fully pay their tax bills when they filed their tax returns.

Now that the IRS has resumed notifications to taxpayers of unpaid tax liabilities and will start collections procedures — which can result in liens and levies against your property, wages, and bank accounts — taxpayers are not only surprised to hear from the IRS, many are questioning the penalties that continued to accrue during  the IRS’s internal slowdown. 

IRS Commissioner Danny Werfel said that “[a]s 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.”

But you may be eligible for relief. The IRS is already taking steps to adjust eligible individual taxpayer accounts through penalty relief. Beginning next month, the IRS will be issuing reminder letters to alert the taxpayer of their outstanding liability, and the amount of penalty relief applied for those who are eligible.

Who Is Eligible for Relief?

The penalty relief only applies to eligible taxpayers with assessed tax under $100,000,  who were already in the IRS collection notice process or were issued an initial balance due notice between Feb. 5, 2022, and Dec. 7, 2023. According to the IRS, the failure-to-pay penalty will resume on April 1, 2024.

Taxpayers who are not eligible for this automatic relief may still use existing penalty relief procedures, such as applying for relief under the reasonable cause criteria or the First-Time Abate program.

If you receive a notice from the IRS or the Virginia Department of Tax, contact Wolcott Rivers Gates for a confidential consultation with one of our tax attorneys to determine what options are available to you.