The IRS in IRS Notice 2024-7 details how it is providing penalty relief for federal income tax returns filed during the COIVD-19 pandemic. In particular, the penalty relief is for individuals subject to additions to federal income tax for the failure to pay their income tax balances due on their 2021 and 2021 federal income tax returns.
This column explains which individuals are eligible for this relief, what type of tax relief is available, and exceptions to the penalty relief.
When an individual does not pay a federal tax liability, the IRS sends an initial balance due notice.
This notice includes:
(1) IRS Notice CP 14 (Notice of Balance Due); and
(2) IRS Notice CP 161 (Balance Due – Request for Payment or Notice or Unpaid Balance).
An initial balance due notice informs the individual of the amount of tax owed and instructs the individual how to pay the tax liability. If the individual does not pay the tax liability after receiving the initial notice, the IRS normally sends the individual specific automated reminder notices.
On March 13, 2020, President Donald Trump declared a national emergency in response to the ongoing Coronavirus Disease 2019 (COVID-19) pandemic. The same day, the President also issued an emergency declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (“Emergency Declaration”).
The “Emergency Declaration” instructed the Secretary of the Treasury to provide relief from tax deadlines under Internal Revenue Code Section 7508(a) to Americans who have been adversely affected by the COVID-19 emergency. In response, the IRS issued a series of notices and other guidance to provide relief to individual and business taxpayers.
In press release IR-2022-21 dated February 9, 2022, the IRS announced the temporary suspension of the mailing of certain automated reminder notices. The IRS did not suspend the mailing of initial balance due notices. The penalty additions to tax due for the failure to pay taxes owed continued to accrue interest for individuals who did not fully pay their balance due.
The IRS in Notice 2024-7 stated that it will fully resume issuing automated reminder notices during 2024 for income tax balance due for tax years 2021 and earlier, thereby resuming the normal process for these tax years.
Most importantly, the IRS has determined that the relief described below will help certain individual taxpayers. These taxpayers were not sent reminder notices during the temporary suspension of certain automated reminder notices.
What is the IRS’ Grant of Relief?
Eligible individual taxpayers who have filed certain specified income tax returns (“eligible returns”) will have the accrual of additions to tax for the failure to pay taxes owed for the tax year 2020 or 2021 waived for the relief period described below, or to the extent previously assessed and paid, will have such additions to tax automatically abated, refunded or credited to other outstanding tax liabilities, as appropriate, for the relief period.
There is no need for individual taxpayers to request this relief. The IRS will mail a notice to each individual taxpayer who is eligible for this relief.
The notice will present the updated amount owed and any refunds or credit resulting from the automatic abatement. Note that the relief granted in IRS Notice 2024-7 applies to tax under Internal Revenue Code Sections 6651(a)(2) and 6652(a)(3) for the failure to pay taxes owed but does not apply to any amount of interest that accrues as a result of any underpayment.
Who is an Eligible Taxpayer?
An eligible taxpayer is any taxpayer:
1. Whose assessed income tax liability for tax year 2020 or 2021 as of December 7,2023 is less than $100,000. The $100,000 limit excludes any applicable additions to tax, penalties or interest.
2. Who was issued an initial balance due notice on or before December 7, 2023 for tax year 2020 or 2021. This includes Notice CP 14 or Notice CP 161, and
3. Who Is otherwise liable during the relief period for accruals of addition to tax for the failure to pay under Internal Revenue Code Sections 6651(a)(2) or 6651(a)(3) with respect to an eligible return for tax year 2020 or 2021.
What is the Relief Period?
The relief period for purposes of the relief granted in IRS Notice 2024-7 is the period that begins on the later of the date the IRS issued an initial balance due notice to an eligible taxpayer or February 5,2022, and ends on March 31, 2024.
Eligible taxpayers will remain liable for any addition as to tax for the failure to pay tax that accrued before or after the relief period. Eligible taxpayers will also remain liable for any interest that accrues during the relief period as a result of any underpayment of tax for tax years 2020 or 2021.
Federal employees or retirees who may be eligible for this IRS relief and who have questions are advised to consult with a tax professional as soon as possible.