IRS Pandemic-Era Penalty Relief: Who Qualified and What to Do Now

Fusion Legal & Tax · September 21, 2026Practice area5 min readIRS Representation & Audit Defense

An old IRS notice can make it feel as though a problem disappeared and then returned without warning. That concern was at the center of a special IRS penalty-relief measure announced after automated collection reminders had been paused during the pandemic.

The announcement was meaningful, but narrow. It did not forgive the underlying tax, cover every taxpayer with a 2020 or 2021 balance, or permanently stop penalties and interest. Because the dates governing this program have passed, taxpayers should treat it as historical relief that may already have been reflected on an IRS account—not as a new application window.

What was the IRS penalty relief?

According to Drake Software’s report on the IRS announcement, the IRS provided approximately $1 billion in automatic penalty relief to about 4.7 million individuals, businesses, and tax-exempt organizations. The IRS estimated that nearly 5 million returns were eligible, with estimated savings of $206 per return.

The relief addressed a specific fairness concern: automated collection reminder notices had been temporarily suspended beginning in February 2022, but failure-to-pay penalties continued to affect outstanding balances. When collection notices resumed, some taxpayers could have encountered a larger balance after a long period without routine reminders.

For qualifying accounts, the adjustment was automatic. Taxpayers did not have to submit a separate request for this particular relief.

Who qualified for the automatic relief?

The eligibility rules were specific. As described in the report summarizing IRS News Release IR-2023-244, the relief covered eligible taxpayers who:

• had assessed tax of less than $100,000 for tax years 2020 or 2021; and
• were in the IRS collection notice process or received an initial balance-due notice between February 5, 2022, and December 7, 2023.

The announcement applied across several taxpayer groups, including individuals, businesses, trusts, estates, and tax-exempt organizations, when the relevant requirements were met.

Those conditions matter. Having a balance from 2020 or 2021, by itself, did not establish eligibility. Likewise, the relief was not a general cancellation of all IRS penalties for those years.

Did the relief eliminate the tax debt?

No. The relief addressed qualifying penalties; it did not erase the underlying tax liability. The failure-to-pay penalty also resumed on April 1, 2024, according to the terms reported by Drake Software.

That distinction is important today. Even if an account received the automatic adjustment, a remaining tax balance may still require a payment strategy. Waiting without reviewing the account can make it harder to understand which amounts reflect tax, penalties, interest, payments, or credits.

What if the taxpayer had already paid the penalty?

The relief also extended to eligible taxpayers who had already paid their full balances. The IRS said it would issue refunds or apply qualifying payments as credits toward other outstanding federal tax liabilities, as explained in the same report on the automatic adjustments.

If you believe an adjustment or credit should have appeared, start by comparing:

1. the original balance-due and collection notices;
2. the dates and amounts of payments made;
3. the current account balance and payment history; and
4. any later IRS notice showing a penalty reversal, refund, or credit transfer.

The IRS states that taxpayers can view balances, payment history, and transcripts through an online account. A transcript can help reconstruct account activity, but it may take careful review to determine how a payment or adjustment was applied.

What if you did not qualify for this automatic program?

Missing the requirements for this one-time relief does not necessarily end the inquiry. The IRS recognizes several other forms of penalty relief, depending on the penalty and the taxpayer’s circumstances, including first-time penalty abatement and administrative waiver, reasonable cause, and statutory exceptions. The IRS cautions that a taxpayer “may qualify for penalty relief if [the taxpayer] tried to comply with tax laws but [was] unable due to circumstances beyond [the taxpayer’s] control.”

The process usually begins with the notice itself. The IRS instructs taxpayers to follow the directions in the notice and be prepared to identify the penalty and explain why it should be removed. Some requests may be handled by phone. If the IRS cannot approve relief by phone, a taxpayer may request relief in writing using Form 843. A denial may also carry appeal rights.

This is not automatic relief, and approval is never guaranteed. The relevant facts, filing history, payment history, type of penalty, supporting records, and wording of the request can all matter.

What if you still cannot pay the balance?

A clear plan is more protective than ignoring a notice because the full amount is not immediately available. The IRS currently identifies several potential paths for resolving federal tax debt:

• making a payment toward the balance;
• requesting a short- or long-term payment plan;
• pursuing an offer in compromise if eligible;
• requesting a temporary collection delay if eligible; or
• seeking penalty relief where the requirements are satisfied.

These options are summarized on the IRS page explaining how to get help with federal tax debt. The IRS also notes that most payment plans and relief options require all tax returns to be filed.

The best fit depends on more than the headline balance. Before selecting an option, it can help to understand the full financial picture: which returns remain unfiled, whether the assessed amount is accurate, how much can realistically be paid, whether collection deadlines are approaching, and whether the IRS has credited every payment correctly.

A practical checklist for an old IRS notice

If this announcement sounds connected to your situation, consider taking these steps:

• Confirm the tax year. The special pandemic-era program focused on 2020 and 2021 liabilities.
• Check the assessed-tax amount. The reported eligibility threshold was assessed tax below $100,000 for the relevant year.
• Locate every notice. The collection-notice or initial balance-due notice had to fall within the specified February 5, 2022, through December 7, 2023, period.
• Review the account transcript. Look for penalty adjustments, payment transfers, refunds, and a current balance.
• Separate tax, penalties, and interest. Relief from one component does not necessarily remove the others.
• Confirm that all required returns are filed. Filing compliance is commonly necessary before many collection alternatives can move forward.
• Respond by the current notice deadline. Historical relief does not suspend a deadline printed on a new notice.
• Preserve supporting records. Keep notices, transcripts, proof of payment, correspondence, and documents supporting any separate penalty-relief request.

The bottom line

The IRS announcement offered real, automatic help to a defined group of taxpayers affected by the pandemic-era pause in collection reminders. But it was never blanket forgiveness. Eligibility depended on the tax year, assessed amount, and notice history, and the failure-to-pay penalty resumed on April 1, 2024.

If an old balance, unexplained credit, missing refund, or new collection notice is creating uncertainty, the next step is to understand the account before choosing a response. Fusion Legal & Tax helps individuals and businesses review federal tax notices, reconcile account activity, evaluate penalty-relief requests, and consider available collection options. Federal tax representation is available to clients nationwide.

This article provides general educational information, not legal or tax advice for any individual situation. Outcomes depend on the applicable rules and specific account history.