IRS Announces Failure-To-File Penalty Relief for 2019 and 2020
By: Marc T. Finer
Under the Internal Revenue Code, the IRS may assess a financial penalty against a taxpayer for failing to timely file a tax or information return. On August 24, 2022, the Internal Revenue Service issued Notice 2022-36 which provides taxpayers with relief from the failure-to-file penalty with respect to certain specified tax and information returns for tax years 2019 and 2020. To qualify for penalty relief, the eligible return must be filed no later than September 30, 2022. The purpose for this penalty relief is to help struggling taxpayers affected by the COVID-19 pandemic and to allow the IRS to focus its resources more effectively on processing backlogged returns and taxpayer correspondences and help the IRS return to normal operations for the 2023 filing season.
Tax returns eligible for relief include specified tax returns in the Form 1040, 1041 and 1120 series. Partnership (Form 1065) and S-Corporation (Form 1120-S) returns are also included within the relief. The Notice also covers certain taxpayers with international reporting obligations, such as those required to file Form 5471 (Information Return of U.S. Persons With Respect to Certain Foreign Corporations) and Form 5472 (Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business) with their Forms 1065 and 1120, and those taxpayers reporting transactions with foreign trusts and the receipt of foreign gifts. Lastly, the Notice covers Forms 990-PF (private foundation return) and 990-T (exempt organization business income tax return).
In addition, the Notice provides penalty relief to banks, employers and other businesses required to file various information returns, such as those in the Form 1099 series. To qualify for relief, the Notice states that eligible 2019 returns must have been filed by August 3, 2020, and eligible 2020 returns must have been filed by August 2, 2021.
The Notice provides that penalties will be automatically abated, refunded or credited, as appropriate, without any need for taxpayers to request relief. The accompanying news release states that eligible taxpayers who have already paid the eligible penalties will receive refunds or credits and that most of the refunds will be delivered to eligible taxpayers by the end of September.
The penalty relief provisions of the Notice do not apply (1) with respect to any return to which the penalty of fraudulent failure-to-file or the penalty for fraud applies, (2) to any penalties that are part of an accepted offer-in-compromise or settled closing agreement, and (3) to any penalties that are finally determined in a judicial proceeding. In addition, penalties, such as the failure-to-pay penalty, are not eligible for relief. Taxpayers who are subject to ineligible penalties may use existing penalty relief procedures, such as applying for relief under the reasonable cause criteria or First Time Abatement program.
Because of the impending September 30, 2022 deadline, it is imperative for taxpayers who have failed to timely file 2019 and/or 2020 tax or information returns to consult with a tax professional to determine whether any noncompliance qualifies for failure-to-file penalty relief under the Notice.