The IRS Resumes Automated Collection Notices in 2024

During the COVID-19 pandemic, the IRS temporarily suspended the mailing of automated collection notices. As the IRS returns to normal collection procedures, taxpayers should be aware of options available to pay their overdue tax liability.

Collection Pause

Typically, the IRS sends balance due notices to taxpayers who have not paid their tax liability in full. The initial notice advises the taxpayer of the amount due and how to pay. After this initial communication, the IRS will begin sending out automated notices to collect the balance due. During this time, penalties and interest can accrue, adding to the total liability the taxpayer must pay.

The IRS had implemented temporary pauses on some of these communications, as noted above. While the initial notices were not paused, the automated balance reminder notices were suspended. As such, some taxpayers may have gone nearly two years since they were last contacted by the IRS regarding a balance due, during which time penalties and interest continued to accrue.

Special Letter 38

In January of this year, the IRS began sending out Special Letter (LTR 38) to taxpayers in automated collection status to remind taxpayers that normal collection procedures have resumed. This letter provides taxpayers with their updated balance due and balance payoff information.

Also in January 2024, the IRS began mailing automated notices every eight weeks, as opposed to every five, to allow taxpayers additional time to resolve their overdue balances.

The IRS hopes these measures will help taxpayers to resolve unpaid tax bills and avoid additional interest and penalties.

Automatic Failure-to-Pay Penalty Relief

In December 2023, the Internal Revenue Service announced automatic failure to pay penalty relief for individuals, businesses and tax-exempt organizations that were not sent automated collection reminder notices during the pandemic.

To be considered eligible for this relief, taxpayers must:

• Be an individual, business, trust, estate, or tax-exempt organization;
• Have filed a Form 1040, 1120, 1041 or 990-T income tax return for tax years 2020 or 2021;
• Have an assessed tax liability of less than $100,000 (determined per return); and
• Have been in automated collections or been issued an initial balance due notice between Feb. 5, 2022, and Dec. 7, 2023.

An eligible taxpayer who has already paid failure-to-pay penalties related to their 2020 and 2021 tax liabilities will automatically be issued a refund or receive a credit toward another outstanding tax liability.

Taxpayers with a liability of $100,000 or more are not eligible for automatic relief. However, these taxpayers can still apply for penalty relief under the IRS’s First-Time Abate program or based on reasonable cause.

Taxpayers should be mindful that the IRS is not providing automatic penalty relief for failure-to-file penalties. Relief will also not be applied to any penalties for fraudulent failure-to-file. The relief is limited to penalties – any accrued interest will still need to be paid.

Other Options for Resolving Outstanding Tax Debt

The IRS provides various options for resolving tax debt.  For instance, taxpayers may request to enter into an installment agreement to pay their liability over an extended period of time. The IRS offers various types of installment agreements, including short-term and longer-term payment plans, depending upon one’s situation.

Taxpayers who unable to pay their liabilities in full may qualify for an Offer in Compromise (“OIC”) with the IRS, which settles a taxpayer’s liability for less than the full amount owed. To qualify for an OIC, the taxpayer must be compliant with all tax filings, have received a bill for at least one tax debt included in the offer and paid all required estimated tax payments for the current tax year. If the taxpayer is a business owner with employees, all federal tax deposits for the current quarter and the two preceding quarters must have been paid. Taxpayers with the ability to fully pay their tax liability through an installment agreement typically do not qualify for an OIC.

Those who believe they may be impacted by the resumption of collection notices should contact a trusted tax advisor to help them come into compliance.  

In This Issue:

• The IRS Resumes Automated Collection Notices in 2024
• Affordable Care Act Mistakes Can Result in Costly IRS Penalties to Employers
• Desperately Seeking Subject Matter Experts: The IRS Looks to Outsource Revenue Agent Training
• Everything, Everywhere, Audit Once