The American Institute of CPAs is asking the Internal Revenue Service and the Treasury Department for additional penalty relief for taxpayers who didn’t get around to adjusting their withholding and estimated tax payments last year after the changes in the Tax Cuts and Jobs Act.
The IRS agreed last month to provide penalty relief in response to requests from the AICPA, as well as the National Conference of CPA Practitioners, and probably more importantly, leaders of the Senate Finance Committee (see IRS to waive tax penalties for underwithholding and underpayment). But the AICPA feels the relief didn’t go far enough. Last week, Annette Nellen, who chairs the AICPA Tax Executive Committee, wrote a letter to Treasury Secretary Steven Mnuchin and IRS Commissioner Charles Rettig expressing the AICPA’s appreciation for the underpayment penalty relief provided last month in IRS Notice 2019-11. However, she pointed out that the Tax Cuts and Jobs Act, which affected millions of individual taxpayers, ushered in a wide variety of changes in the tax code that demanded guidance and actions from the IRS, such as revising the withholding tables.
“Due to the array of changes brought forth by TCJA and the need for extensive regulatory and administrative guidance, many taxpayers were unable to accurately calculate their tax liability for the 2018 taxable year,” Nellen wrote. “Additionally, as part of the implementation of TCJA, the IRS adjusted the withholding tables resulting in lower withholding. However, the adjusted withholding tables did not account for factors such as the elimination of the personal and dependency exemptions or reduced itemized deductions. As a result, taxpayers may have inadvertently under-withheld their taxes and potentially face penalties. Additionally, limited IRS staff were working on TCJA implementation during the government shutdown, leaving many tax forms and instructions still in the ‘draft’ stage.”
The AICPA recommended that taxpayers receive relief from underpayment penalties if they paid at least 80 percent of the taxes due for the current year or if they paid 80 percent (or 100 percent if their adjusted gross income exceeds $150,000) of the amount of tax shown on their U.S. income tax return for the previous year.
Nellen and the AICPA also suggested that taxpayers should receive relief from late payment penalties if they make a timely request for an extension of time to file their income tax return and pay at least 80 percent of the taxes owed with the request.
The AICPA also asked the IRS to set up an expedited process to grant payment penalty relief to individuals for reasonable cause due to the considerable uncertainty surrounding the new tax law.
The Institute would like the IRS to identify specific circumstances for which offering automatic relief of penalties for the 2018 taxable year is appropriate. That way, taxpayers and their tax practitioners wouldn’t have to face the administrative burden of asking for a waiver of penalties. Lastly the AICPA also wants the IRS to give businesses and tax-exempt organizations relief from underpayment and late payment penalties.
“The vast majority of tax returns are filed by individuals. However, all taxpayers – including businesses and exempt organizations – need appropriate penalty relief,” Nellen wrote. “Similar to individuals, businesses and tax-exempt organizations are subject to underpayment and late payment penalties. The array of changes brought forth by TCJA and the lack of guidance also affected these entities, resulting in many unable to accurately calculate their tax liability for the 2018 taxable year. It is important to maintain a fair and consistent treatment of all taxpayers particularly as they deal with the numerous changes that were part of tax reform.”