IRS Owes Refunds for Pandemic-Era Penalty Relief Oversight

Watchdog audit finds over 2,100 taxpayers missed out on $463,000 in penalty relief.

Jan. 29, 2026 at 7:55am

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A new watchdog audit has revealed that the IRS owes refunds to over 2,100 taxpayers who were mistakenly left out of a pandemic-era IRS relief program. The Treasury Inspector General for Tax Administration found that these taxpayers were collectively eligible for an estimated $463,000 in relief from failure-to-pay penalties related to unpaid taxes in 2020 and 2021. The IRS has since credited the overlooked taxpayers' accounts with the amounts owed.

Why it matters

This oversight highlights the challenges the IRS has faced in administering pandemic-related tax relief programs, which were intended to provide financial assistance to struggling taxpayers. The audit findings raise questions about the IRS's processes for identifying eligible taxpayers and ensuring all those entitled to relief receive it.

The details

The TIGTA audit found that 2,138 taxpayers, representing 2,248 tax accounts, should have been eligible for relief from failure-to-pay penalties related to unpaid taxes for 2020 and 2021. The average penalty refund owed per account was $206. The IRS has since credited the overlooked taxpayers' accounts by the amount owed to them, either reducing any balance owed or issuing refunds.

  • The IRS relief period began on the date the agency issued an initial balance-due notice to a taxpayer, or February 5, 2022, whichever was later, and ended on March 31, 2024.
  • The TIGTA audit was recently released in January 2026.

The players

Treasury Inspector General for Tax Administration (TIGTA)

A government watchdog that conducted the audit and alerted the IRS to the oversight.

IRS

The federal agency that administers tax laws and was responsible for implementing the pandemic-era penalty relief program.

Josh Youngblood

An enrolled agent and founder of The Youngblood Group in Dallas, who provided expert commentary on the importance of filing tax returns on time to avoid penalties and interest charges.

Erin Collins

The National Taxpayer Advocate, who warned that the success of the 2026 tax filing season will depend on how well the IRS is able to assist taxpayers experiencing problems.

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What they’re saying

“Always file even if you cannot pay. The IRS will work with you. There are a variety of resolutions available.”

— Josh Youngblood, Enrolled agent and founder of The Youngblood Group (CNBC)

“The success of the filing season will be defined by how well the IRS is able to assist the millions of taxpayers who experience problems.”

— Erin Collins, National Taxpayer Advocate (CNBC)

What’s next

The IRS is expected to continue working to identify and credit the accounts of any additional taxpayers who were eligible for the pandemic-era penalty relief but were mistakenly overlooked.

The takeaway

This audit highlights the importance of the IRS ensuring all eligible taxpayers receive the relief and assistance they are entitled to, especially during challenging times like the COVID-19 pandemic. It also underscores the need for the IRS to have robust processes in place to accurately identify and assist taxpayers who may be facing financial hardship.