IRS Grants Automatic Penalty Relief for Many 2019 and 2020 Tax Returns
While the IRS postponed the filing deadlines for these two tax years, many taxpayers were unable to timely file their 2019 and/or 2020 tax returns as a result of the COVID pandemic. This has created both a financial hardship on many American taxpayers as well as caused many taxpayers, and their tax advisors, to spend a significant amount of time and energy contacting the IRS to try to get these penalties abated under existing penalty relief programs. Add to that the inability to many times be able to get in touch with anyone with the IRS due to the backlog the pandemic created, and it has created an enormous amount of stress and anxiety for many taxpayers.
So, the phrase “better late than never” is quite appropriate when it comes to this guidance. This guidance provides many taxpayers that have been assessed a penalty for filing their 2019 and/or 2020 tax returns after the filing deadline with relief from those penalties as long as the return has already been filed or will be filed by September 30, 2022.
What returns qualify for penalty relief?
While not every return qualifies for relief under this Notice, the majority of commonly filed tax returns made the list such as:
· Form 1040, U.S. Individual Income Tax Return;
· Form 1041, U.S. Income Tax Return for Estates and Trusts;
· Form 1065, U.S. Return of Partnership Income;
· Form 1120-S, U.S. Income Tax Return for an S Corporation;
· Form 1120, U.S. Corporation Income Tax Return;
· Form 1120-H, U.S. Income Tax Return for Homeowners Associations;
· Form 990-PF, Return of Private Foundation; and
· Form 990-T, Exempt Organization Business Income Tax Return
Note: Form 990 is not included in the list of returns that qualify for this relief.
The notice also provides some limited relief for information returns, such as Forms 1099, that were filed late (but filed before August 1st of the year in which they were due). The above does not represent all of the eligible returns/filings that are eligible for relief under this Notice. Please review Notice 2022-36 for a complete list of those forms that are eligible for penalty relief.
What penalties are covered by this relief?
The Internal Revenue Code contains a number of penalty provisions for the failure to timely file a tax return or the failure to timely provide the IRS required information. This Notice provides relief from many of these penalty provisions all aimed at the late filing of the returns and/or required information.
What is not covered by this Notice is relief from any penalties that have been assessed related to the late payment of any taxes that were due. Those penalties will not be removed as part of this relief.
What do taxpayers need to do to receive the penalty relief granted by this Notice?
The answer is…nothing! If an eligible taxpayer filed their 2019 and/or 2020 tax return late and was assessed a late filing penalty the IRS will be automatically removing that penalty from the taxpayer’s account. If the taxpayer has already paid their tax liability, if any, in full along with the penalty, they will automatically receive a refund check from the IRS equal to the amount of the penalty that was already paid by the taxpayer.
The IRS has stated that they will be sending notices to impacted taxpayers alerting them that this adjustment has been made to their account. These notices, and any related refund checks, will be mailed to the latest address on file with the IRS. Therefore, if a taxpayer’s address has changed since they last filed their return, they will want to notify the IRS of that change.
What if you haven’t already filed your 2019 and/or 2020 tax return and that return is on the list of eligible returns?
Taxpayers have until September 30, 2022 to file their 2019 and/or 2020 tax returns, if they have not already done so, and still be eligible for the penalty relief available under this Notice.
So, if you have not already filed your tax returns for either, or both, of these tax years and you are eligible for the relief you are strongly encouraged to electronically file those returns prior to September 30, 2022.
Are there any additional exceptions to the penalty relief?
The Notice specifically states that the relief is not eligible with respect to any return penalties associated with a fraudulently filed return, penalties associated with an accepted offer in compromise, or to penalties included in a closing agreement or those determined as part of a judicial proceeding.
When can taxpayers expect their penalties to be removed and/or their refund check to be received?
Reports have stated that the IRS estimates that approximately 1.6 million refunds will have to be issued as a result of this relief, totally around $1.2 billion. This will require a significant amount of administrative effort on the part of the IRS so it will likely be months before they get all of the penalties removed from the impacted accounts and the refunds issued. The National Taxpayer Advocate has stated that they recommend giving the IRS until November 30, 2022 to get all the impacted accounts adjusted and the refund checks mail before reaching out to them with questions.
Please don’t hesitate to reach out to your BRC tax advisor if you have any questions as to how this relief may apply to your 2019 and/or 2020 tax filings or to previously assessed penalties.