IRS is waiving over $1 Billion in penalties
First things first, the background story: during 2020 and 2021 the IRS suspended mailing automated reminder letters for overdue taxes from 2020 and 2021. Even though they suspended mailing letters, penalties continued to accrue for American taxpayers. The IRS came out yesterday giving a special one-time penalty relief for these penalties.
I’m going to tell you the important things you need to know about what the IRS announced yesterday, to see what affects you.
- Who does this effect?
- Why is the IRS doing this?
- Do I qualify?
- How do I apply for penalty relief?
- What if I already paid the penalties?
Who does this effect?
This effects almost 5 million taxpayers, most of whom made less than $400K a year. The penalty relief is coming out to around $1 billion dollars.
Why is the IRS doing this?
The IRS decided, because COVID-19 had disrupted the country in 2020 and 2021, that it wasn’t fair to continue assessing the penalties, since the IRS had stopped mailing reminders.
Quote from the IRS, “Due to the unprecedented effects of the COVID-19 pandemic, these reminders would have normally been issued as a follow up after the initial notice.”
The IRS continued, “although these reminders were suspended, 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” (see full IRS press release here).
For those who aren’t aware, the failure to pay penalty is normally assessed at 0.5% per month that you haven’t paid off your tax balance (i.e. approximately 6% per year in penalties, on top of interest).
Do I qualify?
If you were assessed tax under $100K, and you received an initial balance due notice from the IRS between February 5th, 2022, through December 7th, 2023, then you qualify.
This includes individuals, businesses, trusts, and tax-exempt organizations.
- Individual, Form 1040
- Businesses, Form 1120
- Trusts, Form 1041
- Non Profits Form 990-T
How do I apply for penalty relief?
For most people, the penalty relief is automatic, so you don’t have to do anything. But if you owed more than $100k, it’s not automatic. In that case you should write to the IRS and request penalty abatement under “reasonable cause” doctrine or “first time penalty abatement” program.
What if I already paid the penalties?
If you already have paid the penalties, you are entitled to either a tax credit or refund of what you paid (assuming that you do not have any other outstanding tax liabilities in different years). The IRS should automatically credit you for the paid penalties, but if you don’t get it automatically, you should write to them.