Pandemic-Related Disruptions Prompt Unprecedented Measure from the Tax Agency
In a significant move, the Internal Revenue Service (IRS) has announced a waiver of $1 billion in penalties, providing relief to millions of taxpayers who struggled with back taxes for the years 2020 and 2021. The decision comes as a response to the operational challenges posed by the pandemic, causing a backlog in unprocessed tax returns and prompting the IRS to suspend notices to taxpayers with outstanding balances.
IRS Commissioner Daniel Werfel emphasized that this relief measure is a one-time response to the extraordinary circumstances brought about by the pandemic. Despite the suspension of notices, penalties continued to accrue for taxpayers in arrears, leading to the decision to waive fees for those who owe less than $100,000 per year.
The IRS plans to resume sending normal collection notices, but the automatic relief is intended to address the unique challenges faced during the pandemic without requiring additional action from eligible taxpayers.
Werfel assured reporters that the upcoming change would be automatic for many taxpayers, eliminating the need for them to take further steps. Starting next month, individuals falling under the relief category will receive a special reminder letter from the IRS, alerting them of their liability as normal collection processes resume.
Taxpayers who qualify for automatic penalty relief are those who filed a Form 1040, 1041, 1120 series, or Form 990-T tax return for the years 2020 or 2021, owe less than $100,000 per year in back taxes, and received an initial balance-due notice between Feb. 5, 2022, and Dec. 7, 2023. Additionally, those who paid the failure-to-pay penalty will receive a refund, according to Werfel.
The IRS is encouraging eligible individuals to visit IRS.gov/payments for payment plan options if they find it challenging to pay their full balance. Notably, the majority of the approximately 5 million people, businesses, and tax-exempt organizations set to benefit from this relief have incomes below $400,000 per year, the IRS revealed.
As the IRS takes this unprecedented step to ease the financial burden on taxpayers, it underscores the unique challenges posed by the pandemic and the need for flexible measures to support those grappling with economic uncertainties.