January 2, 2024

IRS to Forgive $1 Billion in Penalties on Delinquent Taxes for Over 4.7 Million Taxpayers

The Internal Revenue Service (IRS) has made an announcement aimed at assisting individuals, enterprises, and non-profit organizations with outstanding tax obligations. The agency is set to eliminate almost $1 billion in fines for taxes due by over 4.7 million taxpayers and groups who did not get standard automated collection notifications during the COVID-19 crisis. This penalty relief chiefly applies to those with annual earnings below $400,000. IRS Commissioner Danny Werfel has expressed the agency’s commitment to supporting those who are behind on their taxes.

“With the IRS gearing up for a resumption of routine collection communications, we’ve been mindful of the burden on taxpayers who have not been in regular contact with us and may be facing a sudden increase in their tax debt. It is the responsibility of the IRS to watch out for the interests of taxpayers, and waiving these penalties is a logical tactic to support individuals in such scenarios,” Werfel stated.

What you need to know

The IRS suspended its customary practice of sending automated reminders to taxpayers with tax arrears during the pandemic. Despite the absence of notices, penalties for non-payment mounted for those who failed to settle their tax debts in full following an initial notice.

Consequently, several taxpayers went over a year without hearing from the IRS post-initial notice. Now, the agency is giving a reprieve from failure-to-pay penalties to qualifying taxpayers who were impacted by the hiatus in collection notifications in 2020 and 2021. This remission is anticipated to assist nearly five million taxpayers, with savings of roughly $1 billion expected (averaging to about $206 per return).

This relief effort will result in gradual corrections to the accounts of individuals, businesses, trusts, estates, and tax-exempt organizations. Approximately 70% of those eligible individual taxpayers earn under $100,000 annually.

Taxpayers who are eligible will automatically receive this relief, requiring no further action on their part.

For those who have already paid off their outstanding amounts completely and are eligible, the IRS plans to process refunds or apply credits against open tax liabilities.

Penalties for non-payment will be reinstated post-March 31, 2024, for those who have been granted the current relief.

Please note: This penalty remission is available only to the qualified taxpayers who have accrued taxes below $100,000, particularly for specific tax forms (1040, 1120, 1041, and 990-T) submitted in 2020 or 2021, as well as to those involved in IRS collection procedures or who were issued a balance due notice between February 5, 2022, and December 7, 2023. Each tax return and entity is subject to the $100,000 threshold separately, as emphasized by the IRS.

IRS to restart collection notices with penalty waivers included

The IRS is incrementally reinstating automated collection letters and notices for taxpayers with unpaid taxes prior to the tax year 2022 for individuals and prior to the tax year 2023 for businesses, non-profits, trusts, and estates. Special reminder letters will be disseminated starting January 2024.

These notifications will inform taxpayers of their tax debts, provide convenient payment options, and note any applicable penalty relief.

Upon receiving a reminder from the IRS, it’s imperative to assess it meticulously and take appropriate action. Seek advice from a tax professional if needed.

Should you find it challenging to pay your full balance, the IRS suggests visiting IRS.gov/payments to make payment arrangements.

How to fulfill your IRS tax payments

The IRS advises taxpayers not qualifying for auto penalty relief to consider options like reasonable cause or the First-Time Abate at IRS.gov/penaltyrelief.

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