IRS to cancel $1 billion in penalties for unpaid back taxes

On Tuesday, the Internal Revenue Service announced that it plans to waive $1 billion in penalty fees for individuals and businesses owing back taxes for the tax years 2020 and 2021.

The IRS called it "a major step to help people who owe back taxes," according to a Tuesday press release.

The failure-to-pay penalty relief will impact roughly 4.7 million individuals, businesses, and tax-exempt organizations that did not receive collection reminders during the COVID-19 lockdown. During that time, the agency suspended mailing automated notices for overdue taxes. Despite pausing the reminders, the penalties for failing to pay continued to accrue.

"It was an extraordinary time and the IRS had to take extraordinary steps," IRS Commissioner Danny Werfel said, the New York Post reported. "People need to know the IRS is on their side."

The IRS noted that most of those receiving the relief make under $400,000 annually.

"As a first step, the IRS has adjusted eligible individual accounts and will follow with adjustments to business accounts in late December to early January, and then trusts, estates and tax-exempt organizations in late February to early March 2024. Nearly 70 percent of the individual taxpayers receiving penalty relief have income under $100,000 per year," the agency's press release explained.

Eligible taxpayers include those who filed a Form 1040, 1041, 1120 series, or Form 990-T tax return for 2020 or 2021, owe less than $100,000, and received an initial collection notice between February 5, 2022, and December 7, 2022.

"The failure-to-pay penalty will resume on April 1, 2024, for taxpayers eligible for relief," the IRS noted.

Taxpayers, businesses, and nonprofit organizations that are eligible will automatically receive penalty relief, and no action is required. Individuals who are eligible and already paid the penalties will see the total balance returned to them.

Werfel stated, "As the IRS has been preparing to return to normal collection mailings, we have been concerned about taxpayers who haven't heard from us in a while suddenly getting a larger tax bill. The IRS should be looking out for taxpayers, and this penalty relief is a common-sense approach to help people in this situation."

"We are taking other steps to help taxpayers with past-due bills, and we have options to help people struggling to pay," Werfel added.

Approximately 18.6 million taxpayers owed the IRS $316 billion in back taxes as of 2022, the Wall Street Journal reported.

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