The IRS recently announced penalty relief for certain individuals and businesses who were assessed the failure to pay penalty with respect to certain income tax returns for tax years 2020 and 20211. The penalty will be waived, or if already assessed, will be abated. If taxpayers already paid the penalty, it will be refunded or credited to other outstanding tax liabilities2.
This relief applies to the failure-to-pay penalty assessed under IRC §6651(a)(2) or §6651(a)(3), which generally charges a 0.5% penalty per month (or fraction of a month) for any unpaid amount due either shown on the tax return3 or later assessed by the IRS4.
Penalties assessed or accrued within the “relief period” qualify for waiver or abatement. This “relief period” begins on the date the IRS issued an initial balance due notice to eligible taxpayers, or February 5, 2022, whichever is later, and ends on March 31, 2024. Eligible taxpayers will remain liable for any addition to tax for the failure to pay tax that accrued before or after the relief period5.
Note that while this relief applies to penalties, it does not apply to interest charged on unpaid amounts6.
The penalty relief applies to taxpayers meeting three requirements7:
Eligible Returns for Individuals8:
Eligible Returns for Businesses, Trusts, Estates, and Tax-Exempt Organizations9:
If the taxpayer qualifies, the IRS will automatically waive or abate the penalties and will issue a notice to the taxpayer reflecting the updated amount owed and any refund or credit granted10. Although the IRS indicated the abatement will be automatic, we encourage taxpayers to obtain their account transcripts to ensure this abatement actually occurred.
For those who are not eligible for this relief, there may still be penalty abatement eligibility available through alternative methods. If you have questions about whether you or your business is eligible for penalty relief, contact our team today at (410 497-5947 or schedule a confidential consultation here.