Taxpayers deserve pandemic penalty relief, AICPA says

By Alistair M. Nevius, J.D.

With taxpayers continuing to face challenges related to the COVID-19 pandemic and the IRS facing a backlog of 29 million tax returns that need manual processing, the AICPA on Monday urged the IRS to implement “fair, reasonable, and practical” penalty relief measures to mitigate the pandemic’s effects and minimize required contacts with the IRS.

In a May 17 letter to IRS Commissioner Charles Rettig and Acting Assistant Treasury Secretary for Tax Policy Mark Mazur, Christopher Hesse, CPA, chair of the AICPA Tax Executive Committee, addressed several areas where the IRS could provide various forms of relief for taxpayers.

Among the AICPA’s recommendations were:

  • Providing taxpayers with targeted relief from both the underpayment-of-estimated-tax penalty and the late-payment penalty for the 2020 tax year;
  • Offering a reasonable-cause penalty waiver, similar to the procedures of the IRS’s first-time abate (FTA) administrative waiver, without affecting the taxpayer’s eligibility for an FTA in future tax years;
  • Discontinuing compliance actions until the IRS is prepared to devote the necessary resources for a proper and timely resolution of the matter (at a minimum, the AICPA requests a halt to automatic collection activities of liens and levies for at least 90 days after the May 17 filing deadline); and
  • Aligning requests for account holds with the time it takes the IRS to process any penalty abatement requests.

As part of a reasonable-cause penalty waiver, the AICPA requests that the IRS honor reasonable-cause penalty waiver requests when a taxpayer qualifies for reasonable-cause relief. The IRS should also make taxpayers aware of an e-fax alternative to written reasonable-cause requests for requests over a certain threshold.

The AICPA recommends the IRS provide taxpayers relief from underpayment and late-payment penalties for the 2020 tax year if:

  • The taxpayer paid at least 70% of the tax due for the current year;
  • The taxpayer paid 70% (90% if adjusted gross income (AGI) exceeds $150,000) of the amount of tax shown on their U.S. income tax return for the prior year; or
  • The taxpayer timely requests an extension of time to file the income tax return and pays at least 70% of the taxes owed with the request.

The AICPA understands the current account holds are for nine weeks, but the current time for the IRS to process the mail is about 16 weeks. This time discrepancy forces taxpayers and their advisers to unnecessarily call the IRS and request additional account holds to prevent further collection activities. Therefore, the AICPA is recommending that the IRS align the length of a requested account hold with the amount of time it takes to process and resolve any notice disputes, penalty abatement requests, or coordination of alternative payment arrangements.

Alistair M. Nevius, J.D., (Alistair.Nevius@aicpa-cima.com) is the JofA’s editor-in-chief, tax.

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