As the COVID-19 pandemic continues to create unprecedented disruption and economic uncertainty, the American Institute of Certified Public Accountants (“AICPA”) has submitted a letter to the Department of the Treasury and the Internal Revenue Service requesting blanket penalty waivers for those unable to file or pay their taxes on time. Although the IRS has attempted to provide some relief for taxpayers – extending deadlines and suspending collection activity through its People First Initiative announced in March – these protections ended on July 15.
Despite the IRS extending the deadline for both filing and payment of 2019 income taxes, they have not announced any relief for those taxpayers who cannot file or pay on time. To encourage compliance, the IRS generally assesses failure-to-file penalties when a return is submitted beyond the filing deadline, including extensions, and failure-to-pay penalties when payment of tax is not made in full by the original due date of the return. These penalties add up quickly and interest is also assessed on the balance of both tax and penalty. While administrative relief options are available, the AICPA has asked for the IRS to automatically waive all failure-to-file and failure-to-pay penalties through the 2019 extended deadlines and to reassess the COVID-19 situation in 2021 to determine if a blanket waiver of penalties would be appropriate for the 2020 filing season.
Through the People First Initiative, the IRS suspended installment plan payments and collection action such as liens and levies between April 1 and July 15 to help taxpayers who were affected by the pandemic. These activities are now set to resume, despite the evolving health crisis, record unemployment, and an overwhelming backlog of correspondence and filings that the IRS will be working through in the coming months (or possibly years?). The AICPA has asked the IRS to extend these unprecedented suspensions of collection activities for an additional 90 days, and then reassess the suspensions in light of the economic and societal situation at that time.
With the resumption of collection activity, there will be many taxpayers with balances due that are unable to pay. The IRS does offer installment plan options for taxpayers who cannot pay their tax balances in full, however, depending on the balance due and the taxpayer’s ability to pay monthly, establishing an installment plan can be cumbersome and time-consuming. The AICPA believes that the IRS can streamline this process, asking the Service to establish an expedited process for approval or modification of payment plans “based on realistic and affordable payment arrangements for taxpayers impacted by the coronavirus.” This may be easier said than done, as the IRS generally requires a complete financial statement for taxpayers who cannot afford the monthly payments to pay their debt in full in six or seven years, depending on the size of the balance due, or for those taxpayers who owe more than $100,000. How the IRS will be able to determine what is a reasonable and affordable monthly payment for a taxpayer, while also expediting the processing of the payment plan, remains to be seen.
With no end to the pandemic in sight, it makes sense for the IRS to explore ways to extend the protections rolled out in the People First Initiative, and to provide additional assistance to taxpayers who continue to experience the economic effects caused by this unprecedented health crisis. We have yet to hear from the IRS in response to the AICPA’s requests, but we will continue to monitor the situation.
If you find yourself in the situation where you are unable to pay your taxes, you have penalties accruing, or you have an existing installment agreement that requires modification, Aronson’s tax advocacy team may be able to help. Please contact Patrick Deane or one of Aronson’s tax professionals at 240.364.2580.