September 21, 2022

The Internal Revenue Service recently issued a notice (IRS Notice 2022-36) that provides broad penalty relief for specified delinquent 2019 and 2020 tax returns. For U.S. taxpayers who qualify, this relief will waive and refund delinquent filing penalties for many who filed their 2019 and/or 2020 tax returns late. Notably, certain penalties for international reporting are also waived under this relief.

Relief is Automatic, as long as taxes filed by September 30, 2022

The late-filing penalties for tax years 2019 and 2020 will be automatically abated, refunded, or credited, as appropriate without any need for taxpayers to request this relief. The IRS also added a statement that almost 1.6 million taxpayers who already paid failure to file penalties for their 2019 and 2020 returns will automatically be refunded by the end of September, adding up to more than $1.2 billion in total refunds.

However, if a taxpayer has a 2019/2020 penalty covered under this IRS relief provision and has not yet filed the applicable return, the taxpayer must file before September 30, 2022 to qualify.

This September 30 deadline doesn’t pertain to late filed information returns such as Form 1099. Those returns are eligible for relief if filed as described below:

  • 2019 returns that were filed on or before August 1, 2020, with an original due date of January 31, 2020; February 28, 2020 (if filed on paper) or March 31, 2020 (if filed electronically); or March 15, 2020
  • 2020 returns that were filed on or before August 1, 2021, with an original due date of January 31, 2021; February 28, 2021 (if filed on paper) or March 31, 2021 (if filed electronically); or March 15, 2021

Penalties Covered

The IRS is waiving late filing penalties for the following 2019 or 2020 income tax returns:

  • Form 1040, U.S. Individual Income Tax Return and other forms in the Form 1040 series
  • Form 1041, U.S. Income Tax Return for Estates and Trusts  and other forms in the Form 1041 series
  • Returns filed in the Form 1120 series including:
    • Form 1120,  U.S. Corporation Income Tax Return
    • Form 1120-C,  U.S. Income Tax Return for Cooperative Associations
    • Form 1120-F,  U.S. Income Tax Return of a Foreign Corporation
    • Form 1120-FSC, U.S. Income Tax Return of Foreign Sales Corporation
    • Form 1120-H, U.S. Income Tax Return for Homeowners Associations
    • Form 1120-L,  U.S. Life Insurance Company Income Tax Return
    • Form 1120-ND,  Return for Nuclear Decommissioning Funds and Certain Related Persons
    • Form 1120-PC,  U.S. Property and Casualty Insurance Company Income Tax Return
    • Form 1120-POL,  U.S. Income Tax Return for Certain Political Organizations
    • Form 1120-REIT,  U.S. Income Tax Return for Real Estate Investment Trusts
    • Form 1120-RIC, U.S. Income Tax Return for Regulated Investment Companies
    • Form 1120-SF, U.S. Income Tax Return for Settlement Funds (Under Section 468B)
  • Form 1066, U.S. Real Estate Mortgage Investment Conduit (REMIC) Income Tax Return
  • Forms concerning exempt organizations
    • Form 990-PF,  Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation
    • Form 990-T,  Exempt Organization Business Income Tax Return (and Proxy Tax Under Section 6033(e))

Late filing penalties for certain international information returns:

  • Form 5471,  Information Return of U.S. Persons With Respect To Certain Foreign Corporations
  • Form 5472,  Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business
  • Form 3520,  Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts
  • Form 3520-A,  Annual Information Return of Foreign Trust With a U.S. Owner

Penalties not specified in this notice are not eligible for automatic relief. For example, this relief does not apply to “failure to pay” penalties, assessed at 0.5% per month of unpaid taxes. In addition, penalties on fraudulent tax returns are not eligible for the relief.

This Relief is in Addition to Existing Relief Measures

Please note, the relief under this notice is just an additional relief to existing penalty relief procedures such as reasonable cause criteria or the First Time Abatement (FTA) procedures. If you had a late filing situation, it is important to evaluate the best course of action for resolution as soon as possible.

GRF’s Assessment

The new penalty relief is good news for many taxpayers who have fallen behind on tax filing obligations for 2019 and 2020. For federal income tax, the late filing penalty is typically assessed at a rate of 5% per month and up to 25% of the unpaid tax. The relief also covers late filed international disclosure Forms 5471 and 3520/3520-A for 2019 and 2020, which otherwise would be subject to higher penalties, often $10,000 per failure. This new relief is time sensitive with the filing deadline September 30, 2022.

Need Help? Contact Us!

Filers with questions or concerns about these provisions should contact their CPA, or reach out to us at the contact info below.

Jennifer GalstadJennifer Galstad-Lee, CPA, JD
Senior Manager, Tax
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Jessica KirkpatrickJessica Kirkpatrick, CPA
Senior Manager, Tax
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Troy Turner 2022
Troy Turner, CPA
Vice President and Director of Tax
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