Deadline to Qualify for IRS Expanded Penalty Relief is September 30th
IRS Notice 2022-36 provides welcome penalty relief for taxpayers who have failure-to-file penalties and certain information return penalties for tax years 2019 and 2020. Taxpayers do not have to request abatement from the IRS to receive penalty relief. Applicable penalties will be automatically waived, abated, refunded or credited as appropriate. With limited exceptions, tax returns for 2019 and 2020 must be filed on or before September 30, 2022, to qualify for relief. Penalty relief is being provided to allow the IRS to focus its resources more effectively and further support taxpayers affected by the pandemic.
Relief for Failure to File Penalties
For tax years 2019 and 2020 the IRS provides relief from failure-to-file penalties on the following specified income tax returns filed on or before September 30, 2022:
Form 1040 Series
Form 1041 Series
Form 1120 Series
Form 990 Series
Observations
Penalty relief applies to failure-to-file penalties under IRC Sec. 6651(a)(1). It does not extend to late-payment penalties.
Also, penalty relief does not apply to Form 990, Return of Organization Exempt from Income Tax.
Most refunds or credits for qualifying penalties will be issued by the end of September, but taxpayers are encouraged to allow three months for the IRS to adjust accounts. The IRS will offset a penalty refund against other past-due tax liabilities prior to issuing a refund.
For business taxpayers on a fiscal year end, relief is available for fiscal years that begin in 2019 and 2020.
Relief from Certain International Information Return Penalties
For tax years 2019 and 2020, the Notice also provides relief from failure-to-file penalties for the following international information returns that are filed on or before September 30, 2022:
Observations
The IRS relief is welcome, especially for international information returns that result in enormous penalties for failure to timely file. Prior to the relief, the following penalties would apply for 2019 and 2020:
Relief applies to instances that are attached to the above-mentioned income tax returns and are assessed a penalty at filing. Relief does not extend to penalties that are subsequently determined during an IRS exam. Penalty relief does not apply to tax years prior to 2019.
Relief is not extended to late-filed Form 8865 (Return of U.S. Persons with Respect to Certain Foreign Partnerships), Form 8858 (Information Return of U.S. Persons with Respect to Foreign Disregarded Entities and Foreign Branches), Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation, Form 8938 (Statement of Specified Foreign Financial Assets), or FBARs (FinCEN 114).
Taxpayers should consider other options for penalty relief in situations not covered by the Notice. These include the IRS Streamlined Offshore Programs, the Delinquent International Information Return Submission Procedures, and the Delinquent FBAR Submission Procedures.
Relief from Partnership and S Corporation Late-Filing Penalties
For tax years 2019 and 2020, partnerships that file Form 1065, U.S. Return of Partnership Income, may qualify for relief from failure to timely file penalties or penalties imposed for failure to show required information.
Similarly, S corporations that file Form 1120-S, U.S. S Corporation Income Tax Return, for 2019 and 2020 may qualify for relief from failure-to-file penalties and penalties for failure to provide required information.
To qualify under the Notice, Forms 1065 and Forms 1120-S for 2019 and 2020 must also be filed on or before September 30, 2022.
Relief from Other Information Return Penalties
The IRS will also not impose penalties for failure to timely file certain information returns if:
Information returns include, but are not limited to, Form 1098, Form W-2, Form 1099, Form 1099-NEC, Form 1099-DIV, Form 1099-INT, Form 1099-MISC, and Form 1099-B.
Observations
For information returns relief only applies to late-filing penalties. It does not extend to penalties assessed for incorrect information or for non-compliance with electronic filing requirements.
Relief does not apply to any return to which the penalty for fraudulent failure to file or the penalty for fraud. Relief does not apply to penalties in a previously accepted offer in compromise, a previously executed IRS closing agreement, or penalties finally determined in a judicial proceeding.
The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.