On December 19, 2023, the IRS announced that it would provide automatic penalty relief to approximately 4.7 million taxpayers — individuals, businesses, estates, trusts, and tax-exempt organizations — who were assessed failure-to-pay penalties for tax years 2020 and 2021. The relief, set forth in Notice 2024-7, will result in approximately $1 billion in penalty abatements and represents the IRS's acknowledgment that its own pandemic-era processing delays contributed to the penalty assessments.^[1]

The relief is automatic. Eligible taxpayers do not need to request it, file additional forms, or call the IRS. Penalties that have already been paid will be refunded or credited against other outstanding liabilities.

Background: The Pandemic Backlog

When a taxpayer files a return with a balance due but does not pay in full, the IRS sends a series of collection notices — typically starting with CP14 (initial balance due notice) and progressing through CP501, CP503, and CP504 (escalating collection notices). The failure-to-pay penalty under IRC § 6651(a)(2) accrues at 0.5% of the unpaid tax per month, up to a maximum of 25%. Normally, these collection notices serve as reminders and prompt taxpayers to make arrangements before the penalties accumulate significantly.^[2]

During the pandemic, the IRS suspended most automated collection notice mailings. The suspension began in February 2022 and continued through much of 2023. During this period, failure-to-pay penalties continued to accrue on unpaid balances, but taxpayers did not receive the reminder notices that would have prompted them to pay or enter into installment agreements. Many taxpayers were unaware that penalties were accumulating on their accounts.

When the IRS resumed collection notices in 2024, it faced a dilemma: mailing collection notices to millions of taxpayers whose penalties had accumulated over two or more years of silence — in some cases reaching the 25% maximum — would be perceived as fundamentally unfair. The IRS chose to provide blanket relief rather than force taxpayers to individually request reasonable-cause penalty abatement.

Who Qualifies

The relief applies to taxpayers who filed returns for tax years 2020 or 2021 with an assessed tax liability of less than $100,000 per return and were in the IRS's collection notice process — meaning they had been issued or were eligible for collection notices — during the suspension period. The $100,000 threshold applies per return, not per taxpayer. A taxpayer with a $90,000 balance due on their 2020 return and a $90,000 balance due on their 2021 return would qualify for relief on both returns.^[3]

The relief covers the failure-to-pay penalty specifically. It does not cover the failure-to-file penalty under IRC § 6651(a)(1), the estimated tax penalty under IRC § 6654, or accuracy-related penalties under IRC § 6662. Taxpayers who owe these other penalties must seek abatement through the normal reasonable-cause process.

The relief also does not extend to returns with an assessed tax of $100,000 or more. Taxpayers above this threshold who believe they have reasonable cause for penalty abatement — including the lack of collection notices during the suspension period — may request relief under the standard procedures of IRC § 6651(a) and IRM 20.1.1.

How the Relief Works

The IRS will automatically abate the failure-to-pay penalties that accrued during the notice suspension period. Specifically, the penalty accruals from approximately March 2020 through December 2023 will be removed for qualifying accounts. Penalties that have already been paid will be refunded or applied as credits to other outstanding tax liabilities.

The automatic abatements began in late December 2023 and are expected to continue into early 2024 as the IRS processes the approximately 4.7 million qualifying accounts. Taxpayers should see the adjustments reflected on their account transcripts and will receive notices confirming the abatement.^[4]

Importantly, the underlying tax remains due. The penalty relief does not reduce the tax liability itself, nor does it abate interest. Interest on unpaid tax under IRC § 6601 is not subject to the relief program and will continue to accrue until the balance is paid.

Practical Implications

For taxpayers who have been carrying unpaid balances from 2020 and 2021, this is a significant opportunity. The abatement of the failure-to-pay penalty effectively reduces the outstanding balance by up to 25% of the original tax liability — a material amount that can make the difference between a manageable installment agreement and an unmanageable debt burden.

The IRS has also announced that when it resumes collection notices for these accounts, it will restart the notice sequence from the beginning rather than picking up where the automated process left off. This gives taxpayers a fresh opportunity to respond to collection notices and make payment arrangements before more aggressive enforcement actions (such as liens and levies) are pursued.

For tax practitioners, the key action item is to review clients' accounts for tax years 2020 and 2021 to confirm that the automatic abatement has been applied correctly. Practitioners should also identify clients with balances above $100,000 who may qualify for reasonable-cause abatement under the general rules and assist them in filing penalty abatement requests that cite the notice suspension as a contributing factor.^[5]

The broader lesson is that the IRS's post-pandemic recovery continues to create both challenges and opportunities for taxpayers. Staying informed about relief programs and processing changes — and acting promptly when opportunities arise — remains essential.