On August 24, 2022, the IRS issued Notice 2022-36, providing penalty relief to millions of taxpayers for certain 2019 and 2020 returns that were filed late. In general, the failure to file penalty is assessed at a rate of 5% per month and can add up to 25% of the unpaid tax when a federal tax return is filed late.
So, if you missed a due date and filed a late return for 2019 or 2020, certain failure to file penalties will be waived because of this announcement. If the penalties were already assessed, they will be abated. If you already paid the penalties, you’ll receive a credit or refund. The IRS expects to process all these refunds—totaling $1.2 billion—by the end of September. The penalty relief will be provided automatically, so taxpayers do not need to do anything to take advantage of this opportunity.
Here is the list of penalties and tax forms eligible for this relief:
Failure to file penalty under Internal Revenue Code Section 6651(a)(1)
- Form 1040, Form 1040-C, Form 1040-NR, Form 1040-NR-EZ, Form 1040 (PR), Form 1040-SR, and Form 1040-SS
- Form 1041, Form 1041-N, and Form 1041-QFT
- Form 1120, Form 1120-C, Form 1120-F, Form 1120-FSC, Form 1120-H, Form 1120-L, Form 1120-ND, Form 1120-PC, Form 1120-POL, Form 1120-REIT, Form 1120-RIC, and Form 1120-SF
- Form 1066
- Form 990-PF and Form 990-T
Penalties for failure to file certain information returns or furnish certain records with respect to foreign corporations, partnerships, and trusts under §§6038, 6038A, 6038C, 6039F, and 6677
- Form 5471 and Form 5472 attached to a late-filed Form 1120 or Form 1065
- Form 3520 and Form 3520-A
Penalties for failure to file a partnership return or disclose certain information on a partnership return under §6698(a)(1) and (2)
Penalties for failure to file an S corporation return or disclose certain information on an S corp return under §6699(a)(1)
For the forms listed above, to qualify for this relief, the tax return(s) must be filed on or before September 30, 2022.
Notice 2022-36 also provides failure to file penalty relief under §6721(a)(2)(A) for banks, employers, and businesses required to file information returns described in §6724(d)(1) if the following criteria are met:
- 2019 returns must have been filed on or before August 1, 2020 with an original due date of January 31, 2020; February 28, 2020 (if paper filed) or March 31, 2020 (if electronically filed); or March 15, 2020. Note that since August 1 fell on a weekend, returns filed by August 3, 2020 are considered timely for purposes of this relief.
- 2020 returns must have been filed on or before August 1, 2021 with an original due date of January 31, 2021; February 28, 2021 (if paper filed) or March 31, 2021 (if electronically filed); or March 15, 2021. Similarly, since August 1, 2021 also was on a weekend, returns filed by August 2, 2021 also are considered timely for this purpose.
Information returns in this final category include forms such as Form W-2, Form 1099, Form 1094-C, and Form 1095-C. You can find a list of information returns on the IRS website.
There are some exceptions. Situations where a fraudulent return was filed, where penalties are part of an accepted offer in compromise or a closing agreement, or where the penalties were finally determined by the court are not eligible for this penalty relief. This relief also does not extend to other types of penalties that are not listed above, like failure to pay, but taxpayers may use existing penalty relief procedures in these situations., e.g., the first-time abate program or reasonable cause.
During the COVID-19 pandemic, Congress and the IRS postponed multiple filing deadlines, which may have resulted in confusion for taxpayers when their tax returns were due. In addition, this relief should help the IRS prepare for the 2023 filing season. Many IRS employees worked remotely during the pandemic and thus did not have access to paper-filed returns. With the agency’s responsibility to process three rounds of stimulus payments, the agency faced a significant backlog in processing tax returns. In fact, the IRS did not complete processing individual tax returns filed during 2021 until June 2022 and continues to process business returns filed in 2022. By providing this relief, the agency hopes to free up resources that would otherwise be tied up in processing penalty correspondence.
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