On August 24, 2022, the Internal Revenue Service (IRS) announced through release Notice 2022-36 that it will be providing relief to certain taxpayers for the failure to file penalties for the 2019 and 2020 tax return years. To benefit from this relief, the eligible income tax returns must be filed before September 30, 2022. The IRS also explained in IR-2022-155 this penalty relief will apply to most people and businesses who filed or will file certain 2019 or 2020 returns late.
The penalty, (IRC sec 6651 (a) (1)) is a charge assessed on returns filed after the due date or extended due date without reasonable cause. The penalty is usually calculated at five percent of the tax liability due for each month or partial month the return is late, up to a maximum of twenty five percent. This penalty is in addition to the other penalties assessed when failing to pay the tax by the due date (IRC sec 6651 (a) (2)).
This relief will apply to numerous returns, including Federal Income Tax returns: Forms 1040, 1041, 1065, 1120 series including 1120-POL, 990-T, 990-PF and attached international information returns: 5471, 5472, 3520 and 3520-A. Relief will also be provided for certain domestic information returns for 2019 that were filed before August 1, 2020, and certain information 2020 returns that were filed before August 1, 2021.
Penalties not included in this relief are:
- Penalties determined by an IRS examination;
- Penalties included in an accepted offer in compromise;
- Penalties are included in a closing agreement or determined by the court; and
- Any penalty where the failure to file is due to fraud.
There are several reasons for the penalty relief. One reason the penalty relief has been granted is in response to the continued effects of the COVID-19 pandemic. Many taxpayers had difficulty and faced challenges in filing timely tax returns. Some experienced COVID-19 themselves or they relied on professionals who were also impacted by the pandemic. Another reason is the IRS was virtually unavailable during the pandemic with office closings. The IRS generated a backlog of unprocessed returns and had almost no customer service due to the pandemic.
Besides providing relief to both individuals and businesses, this granting of penalty relief was designed to allow the IRS to focus its efforts and resources on processing backlogged tax returns and taxpayer correspondence in an effort to return to normal operations for the 2023 tax season.
If taxpayers have already filed their return and have been assessed or paid a penalty, they do not have to do anything – the penalty relief is automatic. Eligible taxpayers do not need to file for relief or apply for a refund. The IRS will automatically send refunds to taxpayers who paid a penalty and will abate the penalty if it has already been assessed.
If you did not file, you must file as soon as possible. It is important to file any late returns by September 20, 2022, to take advantage of the penalty relief. Our professionals are available to help file any late returns at Calibre CPA Group.
Article Prepared By:
Deborah Rich | Tax Manager