Automated Notices Suspended During COVID-19

In response to the national emergency declared on March 13, 2020, the IRS temporarily paused certain automated reminder notices, including balance due and unfiled return notices, starting February 9, 2022. However, initial balance due notices were not affected by this suspension.

Despite the pause, failure-to-pay penalties—calculated at 0.5% of unpaid taxes per month, up to 25% of the unpaid amount—continued to accrue for unpaid balances.

Notices Resuming in 2024

The IRS will restart automated reminder notices for tax years 2021 and earlier beginning in 2024. Taxpayers should expect the normal notice process to resume, which emphasizes the importance of addressing any outstanding balances or issues promptly to avoid additional penalties or interest.

Penalty Relief for 2020 and 2021 Tax Years

In light of the challenges faced during the pandemic, the IRS has introduced penalty relief for failure-to-pay penalties for certain income tax returns filed for the 2020 and 2021 tax years. Key aspects of this relief include:

• Eligibility: Taxpayers with assessed income tax of less than $100,000 (excluding penalties, interest, or additional charges) as of December 7, 2023, and those who received an initial balance due notice (e.g., Notice CP14 or CP161) for these tax years.
• Forms Covered: Relief applies to various forms, including individual (1040 series), corporate (1120 series), estate and trust (1041 series), and exempt organization returns (990-T).
• Relief Period: The relief period starts from either the date of the initial notice or February 5, 2022 (whichever is later) and ends on March 31, 2024.

Important Notes on Relief

While failure-to-pay penalties may be abated, refunded, or credited during the relief period, taxpayers remain responsible for penalties accrued outside this period and any interest on unpaid balances. Fraud-related penalties and certain settlements, such as those involving offers in compromise or closing agreements, are excluded from this relief.

What Should Taxpayers Do?

If you received a balance due notice for 2020 or 2021 or believe you’re eligible for penalty relief, take the following steps:

1. Review Your Tax Records: Ensure your tax payments and filings align with the IRS notices.
2. Contact the IRS or Your Tax Preparer: Verify eligibility for penalty relief and understand how it may apply to your situation.
3. Act Promptly: Address any outstanding balances to minimize additional interest and penalties as notices resume.

At PaperWerks, we’re here to help you navigate these changes and ensure compliance while minimizing your tax burden. Contact us for assistance with your tax return or to discuss penalty relief eligibility for prior tax years.

Stay informed and proactive to avoid unnecessary penalties and ensure a smooth tax season in 2024!