As we embrace the new year, it’s a time for fresh starts and settling old accounts. A recent IRS announcement about penalty relief for 2020 and 2021 tax returns comes as a welcome relief for many. This move from the IRS, aiming to ease the challenges posed by the pandemic, offers a chance to start the year off right.
Here’s what you need to know about the IRS’s new, automatic penalty relief.
Understanding the Relief
The IRS will automatically waive failure to pay penalties on assessed taxes less than $100,000 for tax years 2020 or 2021. The IRS is offering this relief because notices about these overdue balances were paused during the pandemic.
This is an example of IRS Notice CP21B showing a refund due for tax year 2021. Taxpayers who qualify for automatic penalty relief may receive a similar notice.
Who’s Eligible for Penalty Relief?
Eligible taxpayers include individuals, businesses, estates, trusts, and tax-exempt entities who:
- Filed a relevant tax return for 2020 or 2021 (Form 1040, 1041, 1120 series or Form 990-T),
- Were assessed taxes less than $100,000, and
- Received a balance due notice between February 5, 2022, and December 7, 2023.
Action Steps for Taxpayers
The good news is that eligible taxpayers do not need to take additional actions to receive this IRS relief. Credits will be automatically applied to other tax years with outstanding balances or refunded if the account is paid in full.
Wondering if you’re eligible for relief? Here’s what you can do:
- Check your IRS transcript. This will show you which tax returns you filed in 2020 and 2021, how much you owe, and whether you’ve received automatic penalty relief.
- Make sure your address is updated with the IRS so you don’t miss any refunds or notices.
- Pay any remaining balance in full or arrange a payment plan to avoid additional penalties and interest.
For Those Who Owe More Than $100,000
Taxpayers with assessed taxes exceeding $100,000 are not eligible for automatic penalty relief. However, they can seek penalty relief through “reasonable cause” criteria or first-time penalty abatement. Learn more about these penalty abatement options in our blog post.
Options for Taxpayers Struggling to Pay
The IRS underscores the importance of not delaying responses to notices. While the IRS is waiving certain penalties and interest for tax years 2020 and 2021, you may still owe tax. Failure to repay any outstanding balance can lead to aggressive IRS actions, including a federal tax lien or IRS levy.
For those unable to pay their tax bill in full, the IRS provides several options:
- Payment Plans: Payment plans are available through the Online Payment Agreement tool or IRS text/voice bots, allowing you to arrange an installment agreement.
- Offer in Compromise: The “Holy Grail” of tax resolution, an Offer in Compromise allows qualifying taxpayers to settle for less than the total amount owed.
- Temporarily Delaying Collection: In cases of financial hardship, the IRS may delay collection, although penalties and interest will continue to accrue.
Need Help with Tax Relief? Gordon Law Can Guide You Through
This announcement from the IRS offers significant relief to taxpayers affected by the pandemic. However, it’s crucial for those eligible to understand the scope of this relief, and for those with substantial tax debt to explore available options.
Overcoming your tax debt can be overwhelming. If you need any help understanding your options or negotiating with the IRS, our experienced tax lawyers are here to guide you. Reach out today for a free consultation.