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Tax groups urge IRS to pause auto compliance notices, waive associated penalties

Woman frustrated staring at laptop

The 2022 tax filing season officially begins on Monday, Jan. 24. Some people, however, are not convinced the Internal Revenue Service is ready.

The concern isn't just about the millions of 2021 returns that will be flooding the IRS' system, but also the millions of returns the agency is still processing from the previous COVID-affected filing seasons.

That backlog and continuing challenges prompted a coalition of tax practitioners and advocacy groups to write the IRS and Treasury Department, urging those leaders to "take steps to ameliorate the situation."

Specifically, the representatives from 11 tax and public advocacy organizations want the IRS to provide specific taxpayer penalty relief, including but not limited to targeted relief from underpayment and late payment tax penalties for the 2020 and 2021 tax years.

One of those relief options is to halt the IRS notices that have gone out to taxpayers. In many cases, says the group, the issues wouldn't exist if the IRS was caught up on its backlogged material.

Broad-based tax coalition: The letter to Lily Batchelder, Treasury's Assistant Secretary for Tax Policy, and IRS Commissioner Charles Rettig cites the "unprecedented number of unprocessed returns" due to operational challenges during the coronavirus pandemic.

It was signed by the American Institute of CPAs (AICPA), Latino Tax Pro, National Association of Black Accountants, Inc. (NABA), National Association of Enrolled Agents (NAEA), National Association of Tax Professionals (NATP), National Conference of CPA Practitioners (NCCPAP), National Society of Accountants (NSA), National Society of Black Certified Public Accountants, Inc. (NSBCPA), National Society of Tax Professionals (NSTP), Padgett Business Services, and Prosperity Now.

IRS penalty relief letter January 2022 signees

This coalition, notes the AICPA, represents the diversity of the taxpaying population, as well as small businesses, and low-income taxpayers.

Penalty relief recommendations: The signing groups cite the IRS' issuance of "numerous mistargeted notices, liens and levies." These communications prompt taxpayers and their tax pros to contact the IRS.

Many of the notices are automatically sent. Some of them were erroneously issued. The notices wouldn't have been issued if backlogged filings and payments by the taxpayers were up to date and in the IRS system.

Now, however, the agency is creating more work for itself, taxpayers, and their hired professionals who call to discuss the notices. Since the IRS is able to answer only a small percentage of calls, the letter says taxpayers and their representative are unable to resolve "these straightforward issues."

To remedy that, the 11 signees recommend the IRS take four actions:

  1. Discontinue automated compliance actions until the IRS is prepared to devote the necessary resources for a timely resolution.
  2. Align requests for account holds with the time it takes the IRS to process any penalty abatement requests.
  3. Offer a reasonable cause penalty waiver, similar to the procedures of first time abate administrative waiver.
  4. Provide taxpayers with targeted relief from the underpayment and the late payment penalty for the 2020 and 2021 tax year.

In line with W&M chair, Taxpayer Advocate: The letter notes that the first two actions also were among the recommendations made by National Taxpayer Advocate Erin M. Collins in her 2021 report to Congress.

Last year, House Ways and Means Committee Chairman Rep. Richard Neal also sent his own letter to Rettig urging the IRS to stop sending COVID-delayed notices.

These latest suggested relief measures, said AICPA president and CEO Barry Melancon in a separate, pre-letter statement, are "reasonable actions that would meaningfully reduce persistent, unnecessary and erroneous notifications and help American taxpayers."

"It is time to take steps to ameliorate the situation. Implementing reasonable penalty relief measures, that the IRS can offer immediately, are necessary to help not only taxpayers and tax professionals but also the IRS during these challenging times," said the coalition in its IRS/Treasury letter.

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