IRS Late Filing Penalty Relief

IRS providing automatic penalty abatement for 2019 and 2020 returns (08-24-22)

The IRS has announced that it will provide automatic relief from certain failure to file penalties and information reporting penalties for 2019 and 2020 taxable years. (Notice 2022-36) The IRS will determine whether a taxpayer qualifies and will automatically abate, refund, or credit the taxpayer’s account, as appropriate. No action on the taxpayer’s part is required.

Tax professionals should be ready to answer questions from clients who receive unexpected refund checks and/or IRS notices in the mail informing them of automatic changes to their IRS account.

The purpose of the relief is to allow the IRS to focus more of its resources on clearing its backlog, as well as provide relief to taxpayers affected by the COVID-19 pandemic.

To be eligible for the automatic failure to file penalty relief for the 2019 and 2020 taxable years, eligible entities must have filed their returns by September 30, 2022. The relief applies to:

• Individual income tax returns (Form 1040 series);

• Fiduciary income tax returns (Form 1041 series);

• C corporation income tax returns (Form 1120 series);

• S corporation income tax returns (Form 1120-S);

• Partnership income tax returns (Form 1065);

• REMIC income tax returns (Form 1066);

• Exempt organization income tax returns (Forms 990-PF and 990-T); and

• The following foreign information reporting forms:

  • Form 5471;

  • Form 5472;

  • Form 3520; and

  • Form 3520-A.

To be eligible for the automatic information reporting penalty relief for failure to timely file information returns (Forms W-2, 1099, etc.), taxpayers must meet the following criteria:

• For the 2019 calendar year, returns must have been filed by August 1, 2020; or

• For the 2020 calendar year, returns must have been filed by August 1, 2021.

IRS Notice 2022-36 can be found at: www.irs.gov/pub/irs-drop/n-22-36.pdf

Please note that this penalty relief does not apply to:

• Forms not listed in the IRS Notice

• Failure to pay penalties

• Fraud penalties

• Penalties accepted as part of an offer in compromise

• Penalties included in a closing agreement

• Penalties that were determined by a court

For any ineligible penalties, you may wish to consider other available existing relief procedures, such as applying for first-time penalty abatement or reasonable cause relief.