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IRS provides broad-based penalty relief for certain 2019 and 2020 returns due to the pandemic

Written on Aug 26, 2022

The Internal Revenue Service on Aug. 24 issued Notice 2022-36, which provides penalty relief to most people and businesses who file certain 2019 or 2020 returns late. 

Nearly 1.6 million taxpayers will automatically receive more than $1.2 billion in refunds or credits. Many of these payments will be completed by the end of September. 

Besides providing relief to both individuals and businesses impacted by the pandemic, this step is designed to allow the IRS to focus its resources on processing backlogged tax returns and taxpayer correspondence to help return to normal operations for the 2023 filing season. 

The relief applies to the failure to file penalty. The penalty 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 filed late. This relief applies to forms in both the Form 1040 and 1120 series, as well as others listed in Notice 2022-36, posted on IRS.gov.  

To qualify for this relief, any eligible income tax return must be filed on or before Sept. 30, 2022. 

In addition, the IRS is providing penalty relief to banks, employers and other businesses required to file various information returns, such as those in the 1099 series. To qualify for relief, the notice states that eligible 2019 returns must have been filed by Aug. 1, 2020, and eligible 2020 returns must have been filed by Aug. 1, 2021. 

Because both of these deadlines fell on a weekend, a 2019 return will still be considered timely for purposes of relief provided under the notice if it was filed by Aug. 3, 2020, and a 2020 return will be considered timely for purposes of relief provided under the notice if it was filed by Aug. 2, 2021. The notice provides details on the information returns that are 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 this relief, any eligible tax return must be filed on or before Sept. 30, 2022. 

The penalty relief is a first step, but OSCPA and AICPA are still advocating for passage of the federal H.R.5155, the Taxpayer Penalty Protection Act.  Members can use our take action page and send emails to your federal legislators to advocate for its passage and to share frustrations about IRS service levels.