Tax Alerts

Update on IRS Automatic Penalty Notices, Assessments and Processing Delays

Taxpayers are extremely frustrated on multiple fronts, from not having received their 2020 tax refunds to receiving penalty notices for their 2019 and 2020 income tax returns.

A group of U.S. senators and representatives have called on the IRS and the Department of Treasury to provide relief for those taxpayers who are stuck in the agency’s backlog and have received automated penalty notices.  The IRS has issued almost 90,000 premature notices and demands for tax payments to taxpayers whose 2019 tax returns were filed by the July 15, 2020 extended due date but not yet processed by the IRS.

Legislators want the IRS to:

  • Delay collection of penalties from taxpayers waiting for the agency to process active and pending penalty abatement requests.
  • Streamline the process for taxpayers affected by the pandemic to show reasonable cause for penalty abatement, without the need for written correspondence.
  • Lift penalties for taxpayers who paid at least 70 percent of taxes they owed for each of the past two years.
  • Speed up processing of amended returns.
  • More quickly answer inquiries from congressional caseworkers and the Taxpayer Advocate Service.

A statement recently issued by the IRS states “the IRS has been taking important steps to modify our operations and provide additional taxpayer relief. These efforts include suspending issuance of certain automated notices and related actions. “

The IRS says they will suspend notices in situations where the taxpayer has a credit for payments made but has no record of a tax return being filed as the return may be one of the paper tax returns not yet processed. But the agency also notes that other notices will likely continue to be issued, arguing that some notices must go out by a certain date per the statute.

2021 Tax Return Delays

Beginning with the 2021 tax year, the IRS is requiring partnerships and S corporations with international tax activity to file Schedules K-2 and K-3 in addition to Schedule K-1. Partnerships and S corporations are required to file the forms if they have any type of foreign activity including foreign tax credits,  Global Intangible Low-Taxed Income (GILTI),  subpart F income or foreign-derived intangible income (FDII).

Gathering, analyzing, and reporting all the data required in Schedules K-2 and K-3 creates more complexity in the tax compliance process and will require a substantial amount of filers’ time and resources.

As of today, Schedules K-2 and K-3 are unavailable in many tax programs and will not be available prior to the March 15th due date, therefore requiring entities’ 2021 tax returns to go on extension.

For any questions about IRS payment notices and processing delays, please feel free to reach out to Sax’s tax advisors by visiting

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