IRS Again Urged to Provide Penalty Relief Amid Pandemic

This week, the American Institute of CPAs (AICPA) led a coalition of seven professional tax organizations in sending a letter to the Department of the Treasury and the Internal Revenue Service (IRS) calling on the IRS to offer targeted penalty relief to Americans facing hardship due to the COVID-19 pandemic.

The AICPA has been a leading advocate for IRS penalty relief throughout the pandemic and has provided recommendations to the IRS on how to address the growing number of taxpayers and tax practitioners who have been significantly impacted, affecting their ability to meet IRS filing deadlines.

The coalition points out in the letter that “…for many Americans, the global pandemic has created obstacles preventing many taxpayers and their advisors from timely filing returns or making timely payments despite their best efforts. Additionally, the IRS sent mistargeted notices resulting from their inability to process some timely filed returns and timely paid taxes. Indeed, the current state of the IRS, including a reduced workforce, mail backlog and premature compliance action, call attention to the situation.”

AICPA Tax Executive Committee member and practicing CPA, Jan Lewis, has seen firsthand the critical need for the IRS to grant targeted penalty relief. “About a month ago, I had a small business client with an owner and five employees receive a failure to file penalty notice since the return was filed a few days late. One of the key employees passed away due to COVID-19 and the client was unable to get their data to us in time. When I reached out to the IRS, they told me the client may not qualify for reasonable cause penalty relief since there were others that could have gathered the tax data, which was difficult in this case since the sole owner had to take on more duties due to the employee’s death. There seems to be a disconnect at the IRS as to what taxpayers are facing. A penalty notice is scary for a taxpayer and creates unnecessary stress during an already difficult time,” Lewis explained.

Neil Fishman, Immediate Past President of the National Conference of CPA Practitioners (NCCPAP) – who is also a signatory on the letter – also experienced the added stress of erroneous or unfair penalty notices for his clients. “I electronically submitted a tax return in October on behalf of my client – the balance due was $20,000. We sent in payment when the tax return was submitted, however we received a notice calling for payment plus penalties and interest. In many cases, clients are receiving multiple notices from the IRS even though payment was submitted,” said Fishman.

There are many examples of returns being unavoidably filed late due to a death or illness with the client, employees within the client’s business, or even with the tax practitioner themselves. These late filings have resulted in penalties from the IRS and because of its reduced workforce, there is no way to reach the IRS to explain the circumstances. While the IRS maintains that their current penalty relief measures such as first-time abatement and reasonable cause are enough, the AICPA insists that these measures are not sufficient to provide timely relief and more must be done.

The AICPA and the coalition continue to urge the IRS to implement the following measures in response to the pandemic:

Provide targeted penalty waiver through the creation of an expedited and streamlined reasonable cause penalty abatement process to taxpayers affected by the COVID-19 pandemic that eliminates the need for written requests;
Develop specific coronavirus examples that qualify for reasonable cause abatement and share these examples with all telephone assistors through interim guidance; and
Develop a dedicated telephone number, or dedicated prompt, for taxpayers or their advisors to call to request coronavirus-related penalty relief.

Additional resources and AICPA advocacy work related to COVID-19 can be found at: https://www.aicpa.org/advocacy/tax/covid-19.html

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