COVID_Penalty_Relief IRS Penalty Relief in Response to COVID-19
08 / 24 / 22

IRS Penalty Relief in Response to COVID-19

The IRS has recently announced through Notice 2022-36 that they will provide penalty relief to most people and businesses who filed or will file 2019 and 2020 tax returns late (returns filed on or before September 30, 2022).

This response is done under the President's instruction to the Secretary of Treasury under the March 2020 Emergency Declaration that the IRS "provide relief from tax deadlines to Americans who have been adversely affected by the COVID-19 emergency." 

This will apply both to those for which the penalties remain outstanding and for those who have paid these penalties already.  The IRS says that approximately 1.6 million taxpayers will receive more than $1.2 billion in total in refunds or credits.  The IRS hopes to have this completed by the end of September.

The relief will be on the Failure to File penalty, which is typically 5% per month, capped at 25% of the unpaid taxes when a return is filed late.  This relief applies to 1040 returns, 1120/1120S returns, and 990 returns, and more.

This decision also will provide relief for banks, employers, and other businesses that had a requirement to file various information returns so long as those returns were filed by August 1 of 2020 (for 2019) or August 1 of 2021 (for 2020) and for filers with various international information returns so long as those returns are filed by September 30, 2022.

Failure to Pay penalties are NOT included under this relief provision.  However, taxpayers with those penalties assessed may be eligible for penalty relief under First Time Penalty Abatement provisions and/or Reasonable Cause Penalty Abatement provisions.

The IRS has opted to do this both to provide relief to taxpayers impacted by the pandemic and to free up some of their own resources - greatly needed to help process the backlog of tax returns and taxpayer correspondence and requests.

IRS Commissioner Chuck Rettig says that "throughout the pandemic, the IRS has worked hard to support the nation and provide relief to people in many different ways... the penalty relief issued today is yet another way the agency is supporting people during this unprecedented time."

This penalty relief is set to be automatic for those who qualify, with no need for taxpayers to take any action.