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Failure-to-Pay Penalty Relief for 2020 and 2021 Tax Returns

The Internal Revenue Service (IRS) announced in December 2023 that taxpayers who had a balance due for tax years 2020 or 2021 and did not receive balance due reminder notices due to the pandemic-related pause, may be eligible for automatic penalty relief. The IRS will automatically waive failure-to- pay penalties on assessed taxes less than $100,000 for tax years 2020 or 2021.

This means that individual, business, estate, trust or tax- exempt taxpayers who fit all the following criteria are eligible for automatic failure-to-pay penalty relief:

  1. Filed a Form 1040, 1041, 1120 series or Form 990-T tax return for years 2020 or 2021

  2. Were assessed taxes of less than $100,000

  3. Received an initial balance due notice, typically the CP14 or CP161, between Feb. 5, 2022, and Dec. 7, 2023

They do not have to take any additional actions to receive this relief.

If they made payments on their account or their balance is paid in full, they are eligible for automatic failure-to-pay penalty relief on assessed taxes less than $100,000 per year.

A credit will automatically be applied to any other tax year with a balance due. Otherwise, they will receive a refund.

Taxpayers with assessed taxes of $100,000 or more are not eligible for automatic relief and can apply for penalty relief under the reasonable cause criteria or the First-Time Abate program.

Taxpayers should note that failure-to-pay fees for unpaid balances from 2020 and 2021 will resume April 1, 2024. Therefore, it is important for taxpayers to review IRS payment options and file all outstanding tax returns.

The IRS website has online resources with helpful information, including details on making payments and payment programs as well as unfiled returns. Taxpayers who can’t pay their tax bill can consider payment plans. The IRS offers several options to help meet tax obligations.

If you have difficulty making your tax payment obligations, reach out to CPA Consulting Services and we can assist you in finding the correct resource for you.

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