Late Filers Receive Penalty Relief as the IRS Refunds $1.2 Billion

The Internal Revenue Service is providing penalty relief to most individual taxpayers and businesses that filed their 2019 or 2020 returns late due to the COVID pandemic by refunding $1.2 billion in penalties. The IRS is going further to help the taxpayers who have already paid the penalties by refunding them with automatic payments expected to be completed by the end of this month. Along with providing relief to 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 the Form 1040 and 1120 series and others listed in Notice 2022-36. To qualify for the relief, any eligible income tax return must be filed on or before Sept. 30, 2022.

The IRS also offers 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 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: 

  • 2019 information returns filed on or before Aug. 1, 2020, with an original due date of Jan. 31, 2020, Feb. 28, 2020 (if filed on paper) or Mar. 31, 2020 (if filed electronically), or Mar. 15, 2020; and
  • 2020 information returns filed on or before Aug. 1, 2021, with an original due date of Jan. 31, 2021, Feb. 28, 2021 (if filed on paper) or Mar. 31, 2021 (if filed electronically), or Mar. 15, 2021.

However, the penalty relief does not apply to any penalties not explicitly listed in the notice or fraud situations. It also does not apply to an accepted offer in compromise, a settled closing agreement, or a finally determined judicial proceeding.

Talley’s team of tax professionals provides comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on your assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.

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