The deadline to qualify for IRS penalty relief for late-filed 2019 and 2020 tax returns is rapidly approaching. Taxpayers who have not yet filed their returns should act fast to obtain this recently-announced penalty abatement.
In Notice 2022-36, the IRS announced it will relieve certain taxpayers from failure-to-file penalties and information return penalties incurred on 2019 and 2020 tax returns. Typically, a failure-to-file penalty is incurred at a rate of 5 percent of the tax liability for each month the return is filed late, up to a maximum of 25 percent. However, thanks to Notice 2022-36, penalties for failure-to-file for the 2019 or 2020 tax years will not be assessed or, if assessed already, will be automatically refunded, credited, or abated. To be eligible for the failure-to-file penalty relief, taxpayers must file their 2019 or 2020 tax return on or before September 30, 2022.
Likewise, penalties for failure to file information returns under section 6721 will not be imposed. To be eligible for the information return penalty relief, taxpayers must have filed their 2019 tax return on or before August 1, 2020 or their 2020 tax return on or before August 1, 2021.
Note that the penalty relief is inapplicable to taxpayers who were penalized for fraud.
This penalty relief serves as a win-win for taxpayers and the IRS. During the COVID-19 pandemic, many taxpayers fell behind in their 2019 and 2020 tax filings. The IRS also faced hardship as its workforce went remote and struggled to keep up with day-to-day operations, leaving a huge backlog of returns, refunds, and correspondence to process. An audit of the IRS by the Treasury Inspector General for Tax Administration recently revealed that the IRS had destroyed 30 million information returns because it did not have the manpower to process them. This penalty relief will presumably allow the IRS to catch up on the backlog stemming from COVID-19 emergency operations, onboard new personnel hired pursuant to the Inflation Reduction Act, and avoid potential confusion and delay as a result of the 30 million destroyed tax returns.
Taxpayers with questions about eligibility for penalty relief should contact their tax advisor and be sure all required returns are filed by September 30, 2022.