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Tax Tip Tuesday: IRS to Waive $1 Billion in Penalties for Millions of Taxpayers

50 and 100 dollar bills

The IRS announced a move to assist individuals, trusts, estates, businesses, and tax-exempt organizations facing back taxes. The agency will waive approximately $1 billion in late-payment penalties for taxes owed by nearly 5 million individuals and entities making under $400,000 per year that did not receive automated collection reminders during the COVID-19 pandemic. According to the IRS, the penalty relief benefits those who failed to pay back taxes that total less than $100,000 per year for tax years 2020 and 2021, which amounts to about $206 per return.


IRS Commissioner Danny Werfel emphasized the agency's commitment to supporting taxpayers with past-due bills. In a statement, Werfel stated, “As the IRS has been preparing to return to normal collection mailings, we have been concerned about taxpayers who have not heard from us in a while suddenly getting a larger tax bill. The IRS should be looking out for taxpayers, and this penalty relief is a common-sense approach to help people in this situation.”


Implementing the Waiver

During the pandemic, the IRS temporarily paused its standard practice of sending automated reminders to taxpayers who owed back taxes. Despite the absence of these reminder notifications, individuals who did not fully pay their taxes after receiving an initial balance-due notice continued to accumulate failure-to-pay penalties. Consequently, many taxpayers went without communication from the IRS for over a year following the initial notice. Therefore, the IRS is implementing a waiver of failure-to-pay penalties for eligible taxpayers impacted by the pause in collection notices throughout 2020 and 2021.


The relief is automatic. Therefore, no action is required. The penalty relief applies to eligible taxpayers with assessed tax under $100,000, specifically for certain Forms 1040, 1120, 1041, and 990-T filed during 2020 or 2021, and those engaged in the IRS collection process or issued an initial balance due notice between February 2022 and December 2023. The IRS stresses that the $100,000 limit applies separately to each tax return and entity.


Filers who already paid late-payment penalties will receive a refund or credit. However, late-payment penalties for unpaid balances will resume on April 1, 2024.


Special Reminder Letter

Starting this month, the IRS will send a special reminder letter to inform taxpayers about their liability, flexible payment options, and details about the penalty relief. Most filers can set up payment plans by scanning the QR code from their IRS notice.


If you receive a reminder letter from the IRS, you should thoroughly review it and take appropriate action. Consult a qualified tax professional for assistance.

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