Matter & Substance
  September 6, 2022

Recent IRS Notice Provides Relief from 2019-2020 Late Filing Penalties

On August 24th, 2022, a notice released by the IRS indicated penalty relief to most people and businesses who filed certain 2019 or 2020 returns late.
This notice also provides an opportunity to certain parties to avoid penalties if their returns are filed by September 30, 2022. This relief applies to the failure-to-file penalty, which 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.

Who does this affect?

Anyone who has received penalties or anticipates penalties assessed for filing 2019 and 2020 tax returns late is affected. If returns for both years were filed late, the IRS will provide late-filing penalty relief for both years. Business taxpayers with fiscal years will likewise be eligible for two years of relief for their fiscal years ending 2019 and 2020, respectively.

The following returns, if filed by September 30, 2022, will have penalties removed or not assessed:

  • Federal income tax returns: most Form 1040 and 1120 series returns, Forms 1041, 1065, 1066, 990-T, and 990-PF
  • International information returns (IIRs) attached to the above income tax returns and assessed a penalty at filing: Forms 5471, 5472, 3520, and 3520-A. (IIR penalties subsequently determined during an IRS examination are not included in this relief.)

How do taxpayers apply for this relief?

The IRS’s penalty relief program commenced on August 25, 2022. It automatically provides late-filing penalty relief without taxpayers needing to request the relief and will continue to be applied to returns received through September 30, 2022.

Qualifying penalties will be automatically abated, refunded, or credited, as appropriate without any need for taxpayers to request this relief. Notices and refunds are being initiated now, and many of the refunds will be completed by the end of September. Certain penalties abated manually, such as those associated with the late filing of Forms 3520 and 3520-A, will take somewhat longer to process.

What if I haven’t filed my returns for those years?

If you have not yet filed your 2019 and/or 2020 federal income tax returns, we recommend you do so quickly and electronically. Late-filing penalty relief for tax years 2019 and 2020 will only be applicable to tax returns filed no later than September 30, 2022, although the American Institute of CPAs (AICPA) has asked to extend this penalty relief through the end of the year.

We're here to help

There are exceptions to this relief, and open questions exist regarding the exact tax periods to which the general relief applies and the process for providing the “automatic” penalty abatement relief to taxpayers. If you think your situation applies or have more questions about the relief, contact your trusted M&S tax partner.