Automatic Penalty Relief and Restart of IRS Collections

February 19, 2024
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Key Takeaways

  • The IRS has resumed sending collection notices, which have been paused since the COVID-19 pandemic.
  • To aid taxpayers with past-due balances, the IRS will provide penalty relief on approximately five million 2020 and 2021 tax returns.
  • An experienced tax professional can help you navigate the complexities of outstanding tax balances.

In January 2024, the IRS began gradually activating their automated collection system (ACS), which has been dormant during the years following the COVID-19 pandemic. Taxpayers with accruing balances who haven’t been issued liens or levies during this period will soon begin receiving collection notices. Many of these taxpayers can expect the issuance of wage garnishments, bank levies, and notice of Federal tax lien filings. To aid these taxpayers, the IRS announced on December 19, 2023, that they would be providing penalty relief on approximately five million 2020 and 2021 tax returns.

IRS Penalty Relief on 2020 and 2021 Tax Returns

Although taxpayers were not receiving automated balance due reminder notices, the failure-to-pay penalties continued to accrue. In preparation of collections resuming, the IRS has decided to provide tax relief by waiving the failure-to-pay penalties for the 2020 and 2021 tax years.

Who Qualifies for IRS Automatic Penalty Relief?

Penalty relief only applies to eligible taxpayers with assessed tax under $100,000. The IRS will automatically waive the failure-to-pay penalties for individuals, businesses, trusts, estates, and tax-exempt organizations who were in the collection notice process or were issued an initial balance due notice between February 5, 2022, and December 7, 2023. The $100,000 limit applies separately to each tax return and each entity. For taxpayers that have paid their balances in full, the IRS will issue a refund or credit.

Which Penalties Qualify for Automatic Relief?

For 2020, the IRS has now included the automatic removal of the failure-to-pay penalties in addition to the removal of the failure-to-file penalties (for taxpayers that filed their return prior to September 2022).

For 2021, the IRS will automatically abate the failure-to-pay penalties. Failure-to-file-penalties can still be removed with a review of a taxpayer’s compliance history or via reasonable cause.

Penalty Relief for Ineligible Taxpayers

Taxpayers that are not eligible for automatic relief for the failure-to-pay penalty and have a balance due may request relief based on reasonable cause for events outside the taxpayer’s control that led to the failure to file and/or pay.

What the Resumption of IRS Collections Means for You

The IRS has started issuing CP504 intent to levy notices for balances due for the 2022 tax year. Taxpayers can expect to receive collection notices for all other balance-due tax periods. If you or your organization have outstanding tax balances, it’s important to start preparing now by contacting a tax professional for assistance.

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About the Author(s)

Margarita Stone Photo

Margarita Stone, J.D., LL.M.

Senior Manager
Margarita has more than 17 years of tax experience specializing in federal tax, controversy and procedure. She represents clients before the IRS and States in appeals, collection (installment agreements, offer in compromise, levies, and liens) penalty abatement, and exams and tax court representation for controversies involving the areas of income tax, employment tax and other various tax matters. Margarita works to negotiate, mediate, and settle with the IRS and other taxing authorities to resolve clients’ tax matters.