The Internal Revenue Service announced today that it will provide penalty relief to help struggling taxpayers affected by the COVID-19 pandemic. This includes individuals and businesses who file certain 2019 or 2020 returns late. Additionally, nearly 1.6 million taxpayers who already paid penalties will automatically receive more than $1.2 billion in refunds or credits. The tax penalty refunds should be completed by the end of September.
This not only provides relief to taxpayers impacted by the pandemic but also allows the IRS to focus its resources on processing backlogged tax returns and correspondence. This should also help the IRS return to normal operations for the 2023 filing season.
“Throughout the pandemic, the IRS has worked hard to support the nation and provide relief to people in many different ways,” said IRS Commissioner Chuck Rettig. “The penalty relief issued today is yet another way the agency is supporting people during this unprecedented time. This penalty relief will be automatic for people or businesses who qualify; there’s no need to call.”
Tax Penalty Refunds – What’s Eligible?
The relief applies to the failure-to-file penalty, which is typically assessed at a rate of 5% per month and up to 25% of the unpaid tax when a federal income tax return is not filed on time. Form 1040 and 1120 series, as well as others listed in Notice 2022-36, are eligible for relief.
To qualify for the penalty relief, eligible income tax returns must be filed on or before Sept. 30, 2022.
The IRS is also providing penalty relief to banks, employers, and other businesses required to file various information returns. To qualify for relief, eligible 2019 returns must have been filed by Aug. 1, 2020, and eligible 2020 returns must have been filed by Aug. 1, 2021.
Since these deadlines fell on a weekend, a 2019 return will still be considered timely if it was filed by Aug. 3, 2020. A 2020 return will be considered timely if it was filed by Aug. 2, 2021. Refer to Notice 2022-36 for full details on the information returns eligible for relief.
The notice also provides details on relief for filers of various international information returns, such as those reporting transactions with foreign trusts, receipt of foreign gifts, and ownership interests in foreign corporations. To qualify for relief, an eligible tax return must be filed on or before Sept. 30, 2022.
How Do Taxpayers Get Their Tax Penalty Refunds?
This penalty relief is automatic. The IRS expects to deliver most of the $1.2 billion in tax penalty refunds by the end of September. Eligible taxpayers don’t have to apply for relief. If the penalty was already assessed, it will be abated. If the penalty was already paid, the taxpayer will receive a credit or refund.
Are Certain Situations Excluded From Relief?
The penalty relief is not available in some situations. This includes filing a fraudulent return, penalties that are part of an accepted offer in compromise, or penalties determined by a court.
This relief is also limited to the specific penalty in the notice. Other penalties, such as the failure-to-pay penalty, are not eligible. Taxpayers may use existing penalty relief options, such as reasonable cause or first-time penalty abatement, to seek relief for penalties not covered under Notice 2022-36.
“Penalty relief is a complex issue for the IRS to administer,” Rettig said. “We’ve been working on this initiative for months following concerns we’ve heard from taxpayers, the tax community, and others, including Congress. This is another major step to help taxpayers, and we encourage those affected by this to review the guidelines.”
If you need assistance with penalty relief, contact Tax Defense Network. We can assist with failure-to-pay penalties and others that are not eligible for automatic relief under this new IRS initiative. To see if you qualify, call 855-476-6920 for a free consultation today!