On August 24, 2022, the IRS issued Notice 2022-36 with respect to penalty relief for certain Taxpayers filing returns for the 2019 and 2020 tax periods in an effort to provide additional support for those affected by the COVID-19 pandemic and to help the IRS alleviate its processing backlog. This is great news for an estimated 1.6 million Taxpayers, who will automatically receive an anticipated $1.2 billion of penalties, either refunded or credited. Even more taxpayers will receive automatic penalty abatements.
The IRS is providing an automatic abatement, as early as this September, of certain failure to file penalties, sometimes referred to as late filing penalties. Late filing penalties range from 5% to 25%, depending on whether the Taxpayer is an Individual or Business, and they are also contingent on the type of return that is filed late. If the Taxpayer already paid the late filing penalty, they will receive a refund or credit from the IRS without having to request it.
The automatic abatement does not apply to late payment penalties; however, these penalties could qualify for abatement under the IRS First Time Abate program and/or if the Taxpayer qualifies based on the IRS’s reasonable cause criteria. If you have any of these penalties due to late payments, contact us today to talk about your options and whether we can help provide relief from these penalties.
The IRS announced it will not impose late filing penalties for specific types of tax returns for taxable years 2019 and 2020, as long as they are filed by September 30, 2022. Therefore, in order for this relief to apply you must file your 2019 and/or 2020 return by this date. If you cannot meet this date, there may still be options available, but relief will not be automatic.
What if you already filed your returns and were assessed a late filing penalty? The IRS is refunding late filing penalties that have already been paid by Taxpayers who filed qualifying 2019 and 2020 returns late. The IRS anticipates completing the refund of most of these penalties by the end of September 2022.
Tax forms qualifying for penalty relief include certain returns in the 1040 Series; 1041 Series; Form 1065; 1120 Series; Forms 1120-S; 1066 and 990-PF & 990-T. Additionally, certain information returns also qualify for late filing penalty relief, including Forms 5471, 5472, 3520 and 3520-A.
The penalty relief does not apply to any return or information filing where fraudulent failure to file or fraud penalties apply. It also does not apply to any accepted Offer in Compromise, closing agreement or cases that were finalized in a judicial proceeding.
If you or your business filed 2019 and/or 2020 income or information returns late, or you have not yet filed them, please reach out to the Prager Metis National Tax Controversy team to assist you in determining how you could benefit from this newly announced IRS penalty relief and other penalty relief opportunities that may be available to you.