Editor: Paul Bonner
The AICPA this spring 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.
The recommendations were in a May 17 letter to IRS Commissioner Charles Rettig and Acting Assistant Treasury Secretary for Tax Policy Mark Mazur (available at www.aicpa.org). The letter, signed by 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 the penalties for both underpayment of estimated tax and late payment 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 requested 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 requested 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 over a certain threshold amount.
The AICPA recommended 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 the taxpayer's 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 stated in the letter it understood the current account holds were for nine weeks, but the time for the IRS to process the mail was then about 16 weeks. This time discrepancy forced taxpayers and their advisers to unnecessarily call the IRS and request additional account holds to prevent further collection activities. Therefore, the AICPA recommended 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.