Most individuals and businesses that filed their 2019-2020 tax returns late due to the COVID-19 pandemic will get relief from the associated late fees to the tune of $1.2 billion. Recently issued Notice 2022-36 offers penalty relief to most people and businesses who filed certain 2019 or 2020 returns late and includes an automatic refund for these late fees.
The penalty relief is a major sigh of relief for not only those late filers, but for an overextended IRS that can now focus its resources on processing backlogged returns and correspondence and prepare for “normal” operations for the 2023 season.
Who qualifies for relief?
The relief applies to the penalty for failing to file which generally comes at a rate of 5% per month and up to 25% of the unpaid tax when a federal return is filed late. It applies to both Form 1040 and 1120, and others included in this list, published on the IRS website. Any eligible income tax returns must be filed on or before September 30, 2022 to qualify for relief.
The IRS is also offering penalty relief to employers and other businesses required to file various information returns such as 1099s. Eligible 2019 information returns must have been filed by August 1, 2020 and eligible 2020 information returns must have been filed by August 1, 2021. Both of those dates fell on a weekend, so the IRS will still consider those forms timely if filed by August 3, 2020 (2019 returns) and August 3, 2021 (2020 returns).
There is also relief for filers of various international information returns such as: reporting transactions with foreign trusts, receipt of foreign gifts, and ownership interests in foreign corporations. The September 30, 2022 filing deadline also applies.
The relief does not apply to any penalties not specifically listed in the notice or fraud situations. Accepted offer in compromises settled closing agreements or finally determined judicial proceedings will not qualify.
The notice contains detailed information on which forms and situations will qualify for penalty relief. Those parties that had late 2019 or 2020 filings should contact a tax specialist to determine eligibility to receive an automatic refund.