Systemic penalty relief is now available for certain tax year 2019 and 2020 returns

On August 24, 2022, the IRS announced that it will grant relief for failure-to-file (FTF) penalties on the following 2019 and 2020 federal tax returns:

• Income tax returns: most Form 1040 and 1120 series returns, Forms 1041, 1065, 1066, 990-T, and 990-PF; and
• International information returns (IIRs) assessed a penalty at filing: Forms 5471, 5472, 3520, and 3520-A.

In addition, filers of tax year 2019 information returns (other than IIRs) filed on or before August 3, 2020, will have any portion of an information return penalty that is the result of late filing abated. Information reporting penalties assessed for reasons other than lateness, such as incorrect information or non-compliance with e-file requirements, will not be waived. For tax year 2020 information returns (other than IIRs), the same relief applies to returns filed on or before August 2, 2021.

Act now to qualify for this penalty relief

If you are required to file an income tax return or IIR for 2019 or 2020 and haven’t already done so, act now! Taxpayers who file any of these returns on or before September 30, 2022, will not be subject to penalties for late filing. The penalties within the scope of the IRS’s relief will be automatically abated, refunded, or credited, as appropriate, without any need for taxpayers to request this relief. If you’ve already filed and received a bill for a FTF penalty on one or more of the tax returns listed above, it will be reversed, even if you already requested abatement and it was denied. If you’ve already paid the penalty, you are entitled to a refund, which will generally be issued as a paper check. However, if you owe other federal debts, the refund will be applied to those debts first and then any remainder issued as a refund to you.

Are there any exceptions?

This broad penalty relief does not apply to:

• Penalties included in accepted offers in compromise;
• Penalties settled in a closing agreement;
• Penalties finally determined by a court;
• Fraudulent failure-to-file penalties;
• Penalties for underpayments of tax due to fraud;
• Penalties determined by IRS Examination; or
• Information penalties assessed for reasons other than delinquency, such as incorrect information or non-compliance with e-file requirements.

The Treasury Department and the IRS have determined that this penalty relief will allow the IRS to focus its resources more effectively, as well as provide additional relief to taxpayers affected by the COVID-19 pandemic.

We will update this article as more details are available.

IRS Resources:

• IR-2002-155, COVID tax relief: IRS provides broad-based penalty relief for certain 2019 and 2020 returns due to the pandemic; $1.2 billion in penalties being refunded to 1.6 million taxpayers | Internal Revenue Service
• Notice 2022-36, Penalty Relief for Certain Taxpayers Filing Returns for Taxable Years 2019 and 2020

TAS Resource:

• NTA Blog: Good News: The IRS Is Automatically Providing Late Filing Penalty Relief for Both 2019 and 2020 Tax Returns. Taxpayers Do Not Need to Do Anything to Receive this Administrative Relief.