Internal Revenue Service Announces Penalty Relief for Certain Taxpayers

The Internal Revenue Service (IRS) issued Notice 2024-7 announcing new penalty relief for 2020 and 2021 tax years for individuals, businesses, and tax-exempt organizations affected by the pandemic. The IRS estimates that 4.7 million taxpayers will benefit from more than $1 billion in penalty relief.

After the declaration of a national emergency on March 13, 2020 because of the Covid-19 pandemic, the IRS suspended the mailing of automated reminders to pay overdue tax bills starting in February 2022. During this time, the failure-to-pay penalty continued to accrue for taxpayers who did not pay the full amounts due on the initial balance due notice. This penalty is usually 5% of the tax owed for each month that the payment is late, up to 25%. As the IRS is gearing up to begin sending reminder notices once again, the concern is that taxpayers may receive much larger bills after having no communication from the IRS in over a year.

To assist taxpayers in the return to normal procedures, the IRS will be mailing special reminder letters beginning in January 2024 to alert taxpayers to their outstanding liability, easy ways to pay the amount due, and the amount of applicable penalty relief. Taxpayers unable to pay the full amount due will be directed to the IRS website to arrange resolution of the liability.

The penalty relief applies to eligible taxpayers with assessed tax under $100,000 that were in the IRS collection notice process or were issued an initial balance due notice between February 5, 2022 and December 7, 2023. The tax liability limit applies separately to each return and each entity. The failure-to-pay penalty will resume accruing on April 1, 2024 for taxpayers eligible for the relief.

The penalty relief is automatic with no action required by the taxpayer. The IRS has adjusted eligible individual taxpayer’s accounts and will follow with adjustments to business accounts in late December or early January, followed by adjustments to trusts, estates, and tax-exempt organizations in late February to early March 2024. If eligible taxpayers have already paid their failure-to-pay penalties related to 2020 and 2021 tax years, the IRS will issue a refund or credit the payment toward any outstanding tax liability. The first round of refunds is being issued now through January 2024.

Please contact Ryan expert Ian Boccaccio for assistance with unresolved outstanding tax liabilities or for a review of the calculation of the abated penalties.

TECHNICAL INFORMATION CONTACT:

Ian Boccaccio
Principal
Ryan
469.399.4545
ian.boccaccio@ryan.com

The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.