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IRS to Provide Automatic Penalty Relief for Certain 2019 and 2020 Returns

The IRS announced that it will provide penalty relief for late 2019 and 2020 individual and business tax returns filed no later than September 30, 2022. This is intended to both help taxpayers affected by the COVID-19 pandemic and allow the IRS to focus on processing backlogged tax returns and correspondence in an effort to return to normal operations for the 2023 filing season.

As detailed in IRS Notice 2022-36, the relief applies to the failure to file penalty and is automatic, which means that eligible taxpayers do not need to apply for it. Penalties that have already been assessed will be abated, and penalties that have already been paid will be credited or refunded to the taxpayer.

According to the IRS, almost 1.6 million taxpayers will automatically receive more than $1.2 billion in refunds or credits. The IRS expects to complete many of these payments by the end of September 2022.

Note that:

  • Penalty relief is not available in certain situations, such as where:
    • A fraudulent return was filed
    • The penalties are part of an accepted offer in compromise or a closing agreement
    • The penalties were finally determined by a court
  • The relief is limited to the eligible penalties specifically stated in Notice 2022-36. Other penalties, such as the failure to pay penalty, are not eligible, but taxpayers may use existing penalty relief procedures for these.

Taxpayers who have filed late 2019 or 2020 returns should evaluate their situation to determine whether relief applies. Eligible tax returns include the following:

  • Exempt organization tax returns: Form 990-T, Exempt Organization Business Income Tax Return and Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation
  • Individual income tax returns: Form 1040, Individual Income Tax Return and others in the 1040 series (1040-C, 1040-SR, 1040-NR, 1040-NR-EZ, 1040-PR, 1040-SR, and 1040-SS)
  • Corporate income tax returns: Form 1120, U.S. Corporation Income Tax Return and others in the 1120 series (1120-C, 1120-F, 1120-FSC, 1120-H, 1120-L, 1120-ND, 1120-PC, 1120-POL, 1120-REIT, 1120-RIC, 1120-S, and 1120-SF)
  • Calendar-year and fiscal-year partnership returns: Form 1065, U.S. Return of Partnership Income
  • Estate and trust income tax returns: Form 1041, U.S. Income Tax Return for Estates and Trusts and other returns in Form 1041 series (1041-N and 1041-QFT)

Eligible information returns include:

  • Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations, when attached to a late-filed Form 1120 or Form 1065
  • Required information returns on Form 1065 and Form 1120-S
  • Required information returns (such as Forms 1099 or 1042-S) for 2019 returns that were filed on or before August 1, 2020
  • Required information returns (such as Forms 1099 or 1042-S) for 2020 returns that were filed on or before August 1, 2021

See Notice 2022-36 for additional details and the full list of eligible tax and information returns. Please contact us with any questions.

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