The Internal Revenue Service offered relief from failure-to-pay penalties to nearly 5 million taxpayers during the pandemic, but 3.6 million have since taken steps to pay their tax debts, according to a new report.
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The report, released Monday by the Treasury Inspector General for Tax Administration, noted that in February 2022, the IRS temporarily suspended certain automated collection notices to provide relief to taxpayers during the pandemic. Nevertheless, failure-to-pay penalties continued to accrue on those tax liabilities. In December 2023, the IRS announced it would waive these penalties for eligible taxpayers.
TIGTA found the IRS correctly provided penalty relief to over 99% of the 5 million taxpayers who were eligible for the relief. The IRS also took steps to administer the failure-to-pay penalty relief and help taxpayers pay off the remaining penalty. For example, the IRS published information about the FTP penalty relief and updated its own internal guidance. The IRS also sent out letters from January 2024 through March 2024 notifying the remaining 1.3 million taxpayers that normal collection operations would resume starting in April 2024.
The IRS identified approximately 4.9 million individuals, businesses, trusts, estates and tax-exempt organizations that were eligible for approximately $1 billion in FTP penalty relief for tax years 2020 and 2021.
The FTP penalty relief period started on the date when the IRS issued an initial balance due notice to the eligible taxpayer, or Feb. 5, 2022, whichever was later, and it ended on March 31, 2024. Typically, the FTP penalty is 0.5% of the unpaid taxes for each month or part of a month, but can go as high as 25%. However, TIGTA identified approximately 2,100 taxpayers who were potentially eligible for the FTP penalty relief, though their tax accounts were not marked as eligible as of April 2024. Collectively, TIGTA estimates these taxpayers are potentially entitled to over $463,000 in FTP penalty relief.
Since this was a one-time relief that ended in March 2024, TIGTA doesn’t think the IRS needs to make any programming changes now to identify other potentially affected taxpayers. However, TIGTA recommended the IRS take the necessary steps to provide FTP penalty relief to the 2,138 taxpayers it identified, including but not limited to abating FTP penalties. The IRS agreed with this recommendation and adjusted the taxpayers’ accounts to provide them with the penalty relief.
“We have already adjusted these taxpayers’ accounts so that these taxpayers also benefit from the penalty relief,” wrote Lia Colbert, commissioner of the IRS’s Small Business/Self-Employed Division, in response to the report.
