IRS Offers Penalty Relief to Most Late Filers of 2019 and 2020 Tax Returns
The Internal Revenue Service is providing penalty relief to most individual and business taxpayers who filed their 2019 or 2020 returns late due to the COVID pandemic, while refunding $1.2 billion in penalties to nearly 1.6 million taxpayers who filed late.
As part of the effort the IRS issued Notice 2022-36, which offers penalty relief to most people and businesses who file certain 2019 or 2020 returns late. The IRS is going further to help the taxpayers who have already paid the penalties by refunding them with automatic payments that are expected to be completed by the end of September. According to the IRS, this penalty relief will be automatic for people or businesses who qualify; there’s no need to call.
Along with providing relief to both individuals and businesses affected by the COVID-19 pandemic, the IRS will be able to focus its resources on processing backlogged tax returns and taxpayer correspondence to help return to normal operations for the 2023 filing season.
The relief applies to the penalty imposed for failing to file, which is usually assessed at a rate of 5% per month and up to 25% of the unpaid tax when a federal income tax return is filed late. This relief applies to forms in both the Form 1040 and 1120 series, as well as others listed in Notice 2022-36, posted on IRS.gov.
To qualify for the relief, any eligible income tax return must be filed on or before Sept. 30, 2022.
The IRS is also offering penalty relief to banks, employers and other businesses required to file various information returns, such as those in the 1099 series. To qualify for relief, eligible 2019 returns must have been filed by Aug. 1, 2020, and eligible 2020 returns must have been filed by Aug. 1, 2021. As both deadlines fell on a weekend, a 2019 return will still be considered timely for purposes of relief provided under the notice if it was filed by Aug. 3, 2020, and a 2020 return will be considered timely for purposes of relief provided under the notice if it was filed by Aug. 2, 2021. The notice provides details on the information returns that are eligible for relief.
The notice also provides details on relief for filers of various international information returns, such as those reporting transactions with foreign trusts, receipt of foreign gifts, and ownership interests in foreign corporations. To qualify for the relief, any eligible tax return needs to be filed on or before Sept. 30, 2022.
The tax penalty relief applies broadly, but there are some exceptions. The penalty relief is available for Form 1040 and related forms, as well as Form 1041 and related forms, Form 1120 and related forms, Form 1066, Form 990-PF and related forms. It also applies to some international information returns, including Forms 5471 and 3520. For businesses it applies to Forms 1065 and 1120-S.
The relief also relieves penalties for failure to timely file certain information returns that meet the following requirements:
However, there are some exceptions. The penalty relief does not apply to any penalties not specifically listed in the notice, nor to fraud situations. It also doesn’t apply to an accepted offer in compromise, a settled closing agreement or a finally determined 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.