Special 2018 Underpayment Penalty Relief Expanded to Apply to Those That Paid in At Least 80% of Total Tax Due

The IRS has revised the relief from the underpayment of estimated tax penalty for 2018 returns it first provided in Notice 2019-11, now granting relief to taxpayer that paid in at least 80% of the total tax actually due for 2018, up from 85%.  Notice 2019-25 also provides information on how taxpayers who may have already filed and paid the penalty may obtain relief.

The new notice provides the relief applies in the following cases:

Pursuant to the authority in section 6654(e)(3)(A), the addition to tax under section 6654 for failure to make estimated income tax payments for the 2018 taxable year otherwise required to be made on or before January 15, 2019, is waived for any individual whose total withholding and estimated tax payments made on or before January 15, 2019, equal or exceed eighty percent of the tax shown on that individual’s return for the 2018 taxable year.

A taxpayer requests the application of the relief by following these procedures:

To request this waiver, an individual must file Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, with his or her 2018 income tax return. The form can be filed with a return filed electronically or on paper. Taxpayers should complete Part I of Form 2210 and the worksheet included in the form instructions to determine if the waiver in this notice applies. If the waiver applies, check the waiver box (Part II, Box A), include the statement “80% Waiver” next to Box A, and file page 1 of Form 2210 with the return. Forms, instructions, and other tax assistance are available on IRS.gov. The IRS toll-free number for general tax questions is 1-800-829-1040. This waiver is in addition to any other exception that section 6654 provides to the underpayment of estimated income tax.

Given that this relief was announced late in tax season (on March 22 to be exact), the IRS provided information on how taxpayers who had already paid the underpayment penalty who now qualify for relief may get back the penalty they had paid:

Taxpayers who qualify for relief under Notice 2019-25 may have already paid additions to tax under section 6654 for tax year 2018. If the waiver under this notice applies to a taxpayer and the taxpayer has already paid additions to tax under section 6654 for the 2018 tax year, to claim a refund of the additions to tax under section 6654 for the 2018 tax year, the taxpayer should file Form 843, Claim for Refund and Request for Abatement. Taxpayers should complete the form and include the statement “80% Waiver of estimated tax penalty” on Line 7.

Advisers may not appreciate the use of Form 843, since many tax software programs are not equipped to generate that form.  Others may wonder why the IRS is not able to recognize affected returns and simply refund the penalties.  But, for now, this is the relief option that has been made available.