Will There Be Broader Tax Administrative and Penalty Relief Due to the COVID Pandemic?
The tax filing and payment deadline that was extended to July 15, 2020, because of COVID-19 was not postponed. Taxpayers who were unable to meet the federal tax filing deadline were eligible to request an extension to October 15. By filing their returns on or before October 15, taxpayers were able to avoid penalties and interest.
AICPA Urges Broader Tax Administrative and Penalty Relief
The American Institute of CPAs (AICPA) submitted a letter to the IRS requesting broader tax administrative and penalty relief in light of COVID-19. AICPA’s recommendations addressed three areas.
1. Penalty Relief
Taxpayers who did not file a return or pay the full tax amount due on their return on or before July 15 are subject to penalty and interest. The AICPA asked that the IRS automatically waive penalties for the 2019 tax year until the October 15, extended filing deadline. It was further requested that the IRS reassess COVID-19’s impact during 2021 and decide if similar penalty relief should be offered for the 2020 tax year.
2. Installment Agreements
Taxpayers who were unable to pay their tax obligation in full by the due date may enter an installment plan with the IRS. The AICPA requested that the IRS establish an expedited process that approves new installment agreements or modifications to existing agreements that are based on affordable and realistic arrangements for those impacted by COVID-19.
3. Delay in IRS Collections
The IRS escalating collection process begins with a mailed notice when a taxpayer does not pay their taxes when due. Notices are automatically sent to remind them of how much they owe, including interest and penalties along with a demand for payment. If taxes are not paid or payment arrangements are not made, the automated collection process continues until either:
- The account is paid in full.
- A revenue officer is assigned to the case.
- The IRS can no longer legally collect the tax.
The AICPA requested that the IRS delay its automatic collections of liens and levies for at least 90 days after July 15. At the end of that period, it is recommended that the IRS reassess whether it is appropriate to re-establish its collection activities.
Reasonable Cause for Penalty Relief
While the IRS has yet to provide broader administrative and penalty relief, there may be helpful for some taxpayers. Small business owners and self-employed individuals may be eligible for penalty relief due to reasonable cause, including COVID-19-related illness.