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In a groundbreaking move, the Internal Revenue Service (IRS) declared a whopping $1 billion penalty relief for nearly 5 million taxpayers who missed automated collection reminders during the tumultuous COVID-19 pandemic. This unprecedented measure aims to cushion the financial blow for those who, due to pandemic-related disruptions, did not receive timely notices from the IRS.

Under the penalty relief initiative outlined in Notice 2024-7, failure-to-pay penalties for eligible taxpayers spanning tax years 2020 and 2021 will be entirely waived. An estimated 5 million tax returns, encompassing individuals, businesses, trusts, estates, and tax-exempt organizations, will be eligible for this sweeping penalty relief. Astonishingly, nearly 70% of individual taxpayers set to benefit have an annual income under $100,000.

IRS Commissioner Danny Werfel emphasized that many individuals have gone over a year without receiving any bills from the IRS, making the impending notifications a potential shock for some. Given that penalties and interest have continued to accrue, the bills could be significantly more significant than the last correspondence received by affected taxpayers. In an effort to mitigate this, the IRS expects the penalty relief to translate into approximately $1 billion in savings for taxpayers, averaging around $206 per return.

Commencing next month, the IRS will dispatch unique reminder letters to inform taxpayers of their liabilities, payment options, and the extent of the penalty relief they may qualify for. Encouraging taxpayers unable to settle their total balances to visit, the IRS aims to facilitate smoother resolution of outstanding bills.

The IRS is making strides to implement these changes promptly. Eligible individual accounts have already been adjusted, with business accounts set to follow suit in late December to early January and trusts, estates, and tax-exempt organizations in late February to early March.

Notably, the penalty relief exclusively applies to eligible taxpayers with assessed tax under $100,000, encompassing various entities such as individuals, businesses, trusts, estates, and tax-exempt organizations. To qualify, these entities must have been in the IRS collection notice process or received an initial balance due notice between February 5, 2022, and December 7, 2023. It’s important to highlight that the $100,000 limit on assessed taxes applies separately to each return and each entity. The failure-to-pay penalty, however, is set to resume accruing on April 1, 2024, for eligible taxpayers.

In a parallel development, the IRS is set to resume its automated collection notices and letters in January 2024 for individuals with tax debts predating tax year 2022 and for businesses, tax-exempt organizations, and estates with tax debts predating 2023. This excludes those with existing debts for multiple years. Individuals for the current tax year 2022 and third-quarter 2023 business taxpayers have already begun receiving automated collection notices this fall.

This groundbreaking move by the IRS is poised to provide much-needed relief for millions of taxpayers while marking a significant step toward returning to normalcy in tax collection procedures. Stay tuned for further updates as the IRS navigates through this pivotal phase of penalty relief and collection resumption.

Source ( Journal of Accountancy News).