IRS Penalty Relief

The IRS announced on August 24, 2022, it will be waiving late-filing penalties and processing refunds to taxpayers who missed the filing deadlines on their 2019 and 2020 federal income tax returns (IRS Notice 2022-36). Before this IRS penalty relief announcement there were two ways to petition for a waiver of penalties. The first option was to submit a Form 843 and a letter explaining reasonable cause for the missed filing. The second option was to ask the IRS for a first-time penalty abatement request.

The new IRS penalty relief notice allows 1.6 million taxpayers to receive relief from late-filing penalties incurred. This equates to a total of $1.2 billion in refunds.

To receive a refund, eligible individuals and entities must file their 2019 and 2020 federal tax returns by September 30, 2022. After that, late filing penalties will once again be assessed. Late-filing refunds will be automatically processed by the IRS to all taxpayers who qualify for an abatement, refund, or credit. No action is required by the taxpayer.

Types of taxpayers the IRS penalty relief automatic refund applies to are:

• Form 1040, Individual income tax returns
• Form 1041, Income Tax Return for Estates and Trusts
• Form 1120, Corporation Income Tax returns
• Form 1120S, S corporation income tax returns
• Form 1065, Partnership income tax returns
• Form 1066, REMIC income tax returns
• Form 990, Exempt organization income tax returns, and,
• The following foreign information reporting forms
  • Form 5471
  • Form 547.
  • Form 3520, and,
  • Form 3520-A

In addition, the IRS penalty relief will not impose penalties under Sec. 6721(a)(2)(A) for failure to timely file any informational return (as defined in section 6724(d)(1)) that meets the following criteria:

• 2019 returns that were filed on or before August 1, 2020, with an original due date of January 31, 2020; February 28, 2020 (if filed on paper) or March 31, 2020 (if filed electronically); or March 15, 2020; or
• 2020 returns that were filed on August 1, 2021, with an original due date of January 31, 2021; February 28, 2021 (if filed on paper) or March 31, 2021 (if filed electronically); or March 15, 2021.

There will be no Failure-to-file penalties if the taxpayer is due a refund.

The IRS penalty relief provided in Notice 2022-36 does not apply to separate failure-to-pay penalties incurred by those who filed on time but did not pay on time. The relief also does not extend to the 2021 filing season. As a reminder, taxpayers who requested an extension for their 2021 filings must complete and file by October 17, 2022.

The purpose of this new IRS penalty relief notice is to allow the IRS to focus its resources on clearing its backlog as well as providing relief to taxpayers affected by the COVID-19 pandemic. This change will provide relief to taxpayers facing 5% unpaid taxes for each unpaid month with a cap of 25% total unpaid taxes.

For additional information please contact our tax attorneys at RJS LAW or at 619-595-1655.

www.irs.gov/pub/irs-drop/n-22-36.pdf

Written by Kaveh Imandoust