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IRS Announces $1 Billion Penalty Relief for Taxpayers

IRS estimates 4.7 million individuals, businesses, trusts, estates and tax-exempt organizations are eligible for the penalty relief.

In a groundbreaking move to support individuals and businesses grappling with back taxes, the Internal Revenue Service (IRS) has just unveiled a new penalty relief initiative. This initiative, aimed at approximately 4.7 million taxpayers, comes as a beacon of hope for those who missed automated collection reminder notices during the challenging times of the COVID-19 pandemic.

Penalty Relief for Taxpayers - A Billion-Dollar Boost

The IRS is injecting a substantial $1 billion into penalty relief, predominantly benefiting individuals earning less than $400,000 annually. This relief is a direct response to the unprecedented disruptions caused by the pandemic, prompting the temporary suspension of automated reminders for overdue tax bills starting in February 2022.

Navigating Uncharted Waters

While these reminders were put on hold, the failure-to-pay penalty continued to accumulate for taxpayers who hadn't fully settled their bills after the initial notice. Anticipating the challenges taxpayers might face, the IRS is proactively taking steps before resuming normal collection notices for tax years 2020 and 2021.

A Special Reminder Letter

To ease the transition, the IRS will dispatch a special reminder letter next month, outlining the taxpayer's liability, convenient payment options, and details of any applied penalty relief. For those unable to pay in full, the IRS encourages a visit to to make suitable arrangements to resolve outstanding bills.

IRS penalty relief for 2020 and 2021
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Automatic Relief

This penalty relief is automatic, requiring no action from eligible taxpayers. Individuals, businesses, trusts, estates, and tax-exempt organizations that meet the criteria will benefit from this relief, with adjustments to accounts already underway. The relief covers assessed taxes under $100,000 for tax years 2020 and 2021, providing an estimated $206 per return in savings.

Timely Refunds

For those who have already paid their full balance, the relief is not overlooked. The IRS will issue refunds or credit payments toward other outstanding tax liabilities related to 2020 and 2021. It's a seamless process that ensures eligible taxpayers don't bear the burden of failure-to-pay penalties.

Looking Ahead

It's crucial to note that this relief applies to eligible taxpayers in the IRS collection notice process or those issued an initial balance due notice between Feb. 5, 2022, and Dec. 7, 2023. The $100,000 limit is applicable separately to each return and entity. However, it's temporary, with the failure-to-pay penalty set to resume on April 1, 2024.

Explore Your Options

Taxpayers not covered by automatic relief still have options. They can utilize existing penalty relief procedures, such as applying for relief under reasonable cause criteria or the First-Time Abate program.

Transparency and Support

For those eagerly anticipating refunds or credits, the IRS assures visibility through tax transcripts, with the first round of refunds scheduled from now through January 2024. Any remaining questions on penalty relief can be addressed directly to the IRS after March 31, 2024.

Are you ready to transform your tax challenges into opportunities for financial growth? Look no further than Mark Sullivan Consulting, your trusted partner in navigating the complexities of federal tax controversy, audit, and appeals representation. With over two decades of expertise, Mark Sullivan is not just an Enrolled Agent; he's your advocate in the world of taxes. Request a free consultation HERE  


Disclaimer: This article is for information purposes only and cannot be cited as precedent or relied upon in a tax dispute before the IRS.

Copyright 2023 Mark Sullivan Consulting, PLLC

Reference: IR-2023-244

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