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Tax Problem Attorney BlogIRS Announces Tax Penalty Amnesty!
Well, sort of and only for late filing penalties for 2019 and 2020 tax returns and for a very limited time; until September 30, 2022 to be exact. On August 24th the IRS released Notice 2022-36 “Penalty Relief for Certain Taxpayers Filing Returns for Taxable Years 2019 and 2020.” In essence, as long as you file your 2019 and/or 2020 personal or business income tax return by September 30, 2022, the IRS will automatically abate (remove) failure-to-file penalties for those two years. There is nothing else you need to do in order to receive this penalty relief. That’s a surprise coming from the IRS!
What is a Failure-to-File Penalty?
A failure-to-file penalty is assessed when your return is filed after the due date (usually April 15th for personal income tax returns) or extended due date (when you request a filing extension). It is calculated at 5 percent per month up to a maximum of 25 percent of the tax liability. So, the higher your tax liability, the higher the dollar amount of the penalty. This can add up to thousands of dollars, plus the interest charged on the penalty.
Why is the IRS Being so Generous?
Due to the Covid 19 pandemic some taxpayers experienced difficulties and possibly even hardships in having their tax returns prepared or filed. This could be anything from issues obtaining documents, tax preparers having trouble transitioning to a remote work environment, or possibly illness, among other things. Add to this that the IRS was virtually shut down making it nearly impossible to get in touch with anyone there to answer questions about filing returns, and the Volunteer Income Tax Assistance Program was also virtually shut down. An added by-product was a growing backlog of unprocessed paper returns and correspondence, which still exists today. So even if you did mail your return timely, it could have been processed as late and therefore incurred the late filing penalty.
What Does This Mean to Taxpayers Who Haven’t Filed Their 2019 or 2020 Returns Yet, or Already Filed But They Were Late?
As long as you have your 2019 and/or 2020 tax returns filed no later than the September 30, 2022 filing deadline, the IRS will automatically reverse your late-filing penalties without you having to do anything else. But be aware that this only applies to the late-filing-penalty and not the failure-to-pay or late-payment penalties. Unfortunately, those remain in effect. Hey, the IRS still has to make money, right?
Which Returns Qualify for the Late-Filing Penalty Abatement?
Most common tax returns including certain International Information Returns.
Federal Income Tax Returns (Business and Personal): Forms 1040, 1120, 1041, 1065, 1066, 990-T, and 990-PF.
Certain International Information Returns attached to the above tax returns and assessed a penalty at filing: Forms 5471, 5472, 3520, and 3520-A. Note, International Information Return Penalties determined during an IRS audit are not included in this relief. Also, it is not clear whether it applies to forms attached to individual returns as opposed to entity tax returns.
For a complete list of the tax and information returns included in this penalty abatement, see IRS Notice 2022-36.
In Conclusion
If you haven’t yet filed your 2019 or 2020 federal income tax return you must do so by September 30, 2022 in order to qualify for the automatic abatement of the late-filing penalty. If you have already filed these returns and you were assessed the late-filing penalty, the IRS will automatically reverse the penalty with no further action required by the taxpayer. Remember, if you need to make changes to your return, you can always file an amended return after the September 30th deadline.
Contact Brager Tax Law Group if you need assistance with your tax related issues.