IRS Issues Broad 2019 and 2020 Failure to File Penalty Relief

August 31, 2022 | Kristine A. Tidgren

On August 24, 2022, IRS issued broad penalty relief to most taxpayers who filed 2019 and 2020 returns late. The relief, provided in IRS Notice 2022-36, applies to failure to file (not failure to pay) penalties, as well as some late information return penalties. For the most part, the relief is automatic. The IRS granted the relief to “allow IRS to focus its resources more effectively, as well as provide relief to taxpayers affected by the COVID-19 pandemic.” To take advantage of this relief, specified returns for tax years 2019 and 2020 must be filed on or before September 30, 2022.

Background

IRC § 6651(a)(1) imposes a failure to file penalty for any required return that is filed after the due date (or extended due date), absent reasonable cause. The penalty is generally equal to five percent of the tax liability for each month the return is filed late, up to a maximum of 25 percent. IRC § 6038 and related provisions impose penalties for failure to file international information returns. IRC § 6698(a)(1) generally imposes a penalty for the failure of any partnership to timely file a return. IRC § 6698(a)(2) generally imposes a penalty for filing a return that fails to show the information required under IRC § 6031. IRC § 6699(a)(1) generally imposes a penalty for the failure of any S corporation to file a return required under IRC § 6037. IRC § 6699(a)(2) generally imposes a penalty for filing a return that fails to show the information required under IRC § 6037. IRC § 6721(a)(2)(A) generally imposes a penalty for the failure to file an information return (as defined in IRC § 6724(d)(1)) on or before the required filing date. These are the penalities abated and waived by the August 24, 2022, notice.

Relief

IRS states that the following 2019 and 2020 returns, IF FILED BY SEPTEMBER 30, 2022, will not be subject to penalty:

  • Form 1040 series
  • Forms 1041
  • Form 1120 Series
  • Form 1066
  • Form 990-PF and Form 990-T

The notice also waives penalties for failure to timely file and show correct information on Forms 1065 and 1120-S. Likewise, international information returns are relieved of any late-filing penalty. This includes forms 5471, 5472, 3520, and 3520-A. All of the above relief is available if the forms are filed on or before September 30, 2022.

Limited Information Return Penalty Relief

Additionally, IRS will not impose penalties under IRC § 6721(a)(2)(A) for the failure to timely file any information return (as defined in IRC § 6724(d)(1)) that meets the following criteria:

  • 2019 returns that were filed on or before August 1, 2020 (actually August 3, 2021, because of the weekend), 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; or
  • 2020 returns that were filed on or before August 1, 2021 (actually August 2, 2021, because of the weekend), 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.

This relief generally applies to information returns such as those in the Form 1099 series.

Exceptions

The penalty relief applies only to the penalties listed in the notice. It does not apply to the failure to pay penalty or any penalty for fraudulent failure to file. Additionally, if any penalties were included in an offer in compromise or a closing agreement or determined by a court, those penalties will not be abated.

Procedure

The penalty relief is automatic. This means penalties that have been assessed will be abated. Those that have been paid will be refunded, most by check, not direct deposit. IRS expects refunds totaling $1.2 billion to be paid to nearly 1.6 million taxpayers. These refunds should be paid by the end of September.

Impact on other Penalties

The taxpayer advocate has stated that because this is administrative relief, taxpayers will not be considered to have used the First Time abatement program or a relief for reasonable cause waiver. These relief procedures, however, may be used to abate penalties not covered by the notice, most notably the failure to pay penalty.