The IRS Grants $1 Billion in Penalty Relief

On December 19, 2023, the IRS issued an announcement stating that they will automatically relieve $1 billion in penalties for 4.7 million taxpayers whose 2020 and 2021 returns were affected by notification disruptions caused by the COVID-19 pandemic.

At the start of the pandemic, the IRS suspended the mailing of automated notices reminding taxpayers of their outstanding tax obligations. However, over the course of the prior 22 months, penalties and interest continued to accrue for all taxpayers who had an open tax liability with the IRS.

With the extensive layoff, concerns were raised about the effect that an abrupt restart of these notices may have on taxpayers. Given the unusual circumstances, the IRS provided a set of criteria enabling certain taxpayers to obtain penalty relief.

Taxpayers considered eligible for relief include individuals, certain corporations, estates, trusts, and specific tax-exempt organizations, who for tax years 2020 or 2021:

• Have assessed income tax, that as of December 7, 2023, is less than $100,000, excluding any applicable additions to tax, penalties, or interest;
• Was issued an initial balance due notice on or before December 7, 2023; or
• Is otherwise liable during the relief period for accruals of additional tax.

The relief period window closes on March 31, 2024. Accordingly, eligible taxpayers will remain liable for any additional tax that accrued before or after the relief period. Additionally, taxpayers will remain liable for interest that accrues as a result of any tax years 2020 or 2021 delinquencies.

Starting in January 2024, the IRS will resume issuing automated collection notices via a phased-in approach. However, prior to the rollout, the IRS will send reminders to taxpayers of their federal tax liability and inform them of the penalty relief, as well as options for paying tax liabilities. Taxpayers who already paid penalties that are now subject to the relief will automatically receive a refund or have that amount applied as a credit toward another existing tax liability.

For more information regarding your eligibility for the IRS’s 2020 and 2021 penalty relief initiative, please contact Alan Goldenberg, Principal and Leader of the State and Local Tax and Tax Controversy groups, or your Anchin Relationship Partner.