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  • Naila Sharifova

2018 Underpayment Penalty Guidance

Some good news from the IRS, well sort of... Today IRS issued Notice 2019-11 which  provides a waiver of the addition to tax under section 6654 of the Internal Revenue Code (i.e. a waiver of penalty) for the underpayment of estimated income tax for certain individuals who would otherwise be required to make tax year 2018 estimated income tax payments on or before January 15, 2019.  

   It is not time to party though. This waiver is limited to individuals whose total withholding and estimated tax payments equal or exceed eighty-five (85) percent of the tax shown on the return for the 2018 taxable year. Under the normal circumstances, the underpayment penalty would have been avoided had the total withholding and estimated tax payments equaled or exceeded ninety (90) percent of the tax shown on the return for the 2018 tax year. Thus, the relief is in five percent of the total tax liability.   

   Nevertheless, for certain taxpayers five percent may constitute significant amount and avoiding underpayment penalties on this difference may be a pleasant surprise.     The relief comes after the requests from AICPA, National Conference of CPA Practitioners and Sen. Ron Wyden who pushed for the relief from the impact of the recent tax reform on numerous taxpayers who may have underwithheld. 

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