Most people and businesses who file (or filed) certain 2019 or 2020 tax returns late are going to receive penalty relief in the form of refunds or abatements from the Internal Revenue Service (IRS). Even if you already paid those penalties, the IRS intends to issue refunds or credits. The agency says nearly 1.6 million taxpayers will automatically receive more than $1.2 billion in payments by the end of September.
IRS Commissioner Chuck Rettig
IRS Commissioner Chuck Rettig says:”This penalty relief will be automatic for people or businesses who qualify; there’s no need to call.”
This move targets taxpayers affected by the COVID-19 pandemic. It will also benefit the IRS, which plans to focus its resources on processing backlogged tax returns instead of tracking penalties. The goal is to return to normal operations for the 2023 filing season beginning in January.
Key Takeaways
- The IRS announced Wednesday that up to 1.6 million taxpayers will receive more than $1.2 billion in refunds or credits for penalties paid (or owed) by the end of September.
- The relief targets taxpayers and businesses affected by the COVID-19 pandemic who were penalized for filing late returns for 2019 or 2020.
- Relief is also available for failure to file certain information returns for 2019 or 2020.
- Penalty relief applies to “failure to file” penalties but not to “failure to pay.”
- By extending this relief, the IRS says it will be able to focus resources on processing backlogged returns.
Eligibile Returns
The relief applies to a failure to file penalty for tax years 2019 and 2020 and includes forms in both the Form 1040 and 1120 series. A full list of impacted forms can be found in IRS Notice 2022-36PDF.
September 30, 2022
Date by which affected tax returns for 2019 and 2020 must be filed in order to be eligible for relief.
Failure to file penalties will be automatically abated, refunded, or credited, as appropriate without any need for the taxpayer to request relief for the following income tax returns:
- Form 1040, U.S. Individual Income Tax Return
- Form 1040-C, U.S. Departing Alien Income Tax Return
- Form 1040-NR, U.S. Nonresident Alien Income Tax Return
- Form 1040-NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents
- Form 1040 (PR), Federal Self-Employment Contribution Statement for Residents of Puerto Rico
- Form 1040-SR, U.S. Tax Return for Seniors
- Form 1040-SS, U.S. Self-Employment Tax Return (Including the Additional Child Tax Credit for Bona Fide Residents of Puerto Rico)
- Form 1041, U.S. Income Tax Return for Estates and Trusts
- Form 1041-N, U.S. Income Tax Return for Electing Alaska Native Settlement Trusts
- Form 1041-QFT, U.S. Income Tax Return for Qualified Funeral Trusts
- Form 1120, U.S. Corporation Income Tax Return
- Form 1120-C, U.S. Income Tax Return for Cooperative Associations
- Form 1120-F, U.S. Income Tax Return of a Foreign Corporation
- Form 1120-FSC, U.S. Income Tax Return of a Foreign Sales Corporation
- Form 1120-H, U.S. Income Tax Return for Homeowners Associations
- Form 1120-L, U.S. Life Insurance Company Income Tax Return
- Form 1120-ND, Return for Nuclear Decommissioning Funds and Certain Related Persons
- Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return
- Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations
- Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts
- Form 1120-RIC, U.S. Income Tax Return for Regulated Investment Companies
- Form 1120- SF, U.S. Income Tax Return for Settlement Funds (Under Section 468B)
- Form 1066, U.S. Real Estate Mortgage Investment Conduit (REMIC) Income Tax Return
- Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation
- Form 990-T, Exempt Organization Business Income Tax Return (and Proxy Tax Under Section 6033(e))
Penalties for failure to timely file an Industry Issue Resolution (IIR), designed to resolve certain business tax issues are also abated as well as several other business-related tax forms listed in IRS Notice 2022-36PDF.
The typical IRS penalty failure to timely file is 5% per month up to 25% of the unpaid tax.
Exceptions
In addition to forms not mentioned above, penalty relief is not available in certain situations, such as:
- When a fraudulent return was filed
- With a return in which the penalty was part of an accepted offer in compromise or a
closing agreement - Where the penalties were finally determined by a court
Relief is limited to penalties specifically stated in IRS Notice 2022-36PDF. Other penalties, such as the failure to pay penalty, are not eligible. For ineligible penalties, you may use existing penalty relief procedures, such as applying for relief under the reasonable cause criteria or the First Time Abate
program.
The Bottom Line
As part of a continuing response to taxpayer issues with the COVID-19 pandemic, the IRS is issuing penalty abatements, refunds, or credits for taxpayer and business tax returns and certain other forms for taxable years 2019 and 2020. The deadline to file related returns is Sept. 30, 2022. Most taxpayers will automatically receive their refund by the end of September.
A side benefit of this $1.2 billion refund program will allow the IRS to concentrate resources on a backlog of unprocessed tax returns from 2021. This latest IRS program is not related to the regular IRS Penalty Relief for Reasonable Cause program, which continues.