IRS Provides Penalty Relief for Certain 2019 and 2020 Returns

The Internal Revenue Service (IRS) recently announced in Notice 2022-36 that it will forgive certain failure to file and international information return penalties for certain 2019 and 2020 tax returns that are filed on or before September 30, 2022. The IRS is also forgiving penalties for certain 2019 information returns that were filed on or before August 1, 2020, and for certain 2020 information returns that were filed on or before August 1, 2021.

During the COVID-19 pandemic, taxpayers were given deadline extensions for making Federal income tax payments and filing tax returns. However, taxpayers that failed to file returns by the extended deadlines incurred penalties. The IRS has determined that abating these penalties will allow it to focus its resources more effectively, as well as provide additional relieve to taxpayers affected by the COVID-19 pandemic.

Eligible penalties will be automatically abated, refunded, or credited without any need for taxpayer action. The precise penalties and tax returns that are eligible for this relief are discussed below.

Failure to File Penalty

The IRC Section 6651(a) penalty for failure to timely file will be abated, refunded, or credited, as appropriate, for the following 2019 and 2020 returns filed on or before September 30, 2022:

  • Form 1040, U.S. Individual Income Tax Return
  • Form 1040-C, U.S. Departing Alien Income Tax Return
  • Form 1040-NR, U.S. Nonresident Alien Income Tax Return
  • Form 1040-NR-EZ , U.S. Income Tax Return for Certain Nonresident Aliens with No Dependents
  • Form 1040 (PR), Federal Self- Employment Contribution Statement for Residents of Puerto Rico
  • Form 1040-SR, U.S. Tax Return for Seniors
  • Form 1040-SS, U.S. Self-Employment Tax Return
  • Form 1041, U.S. Income Tax Return for Estates and Trusts
  • Form 1041-N, U.S. Income Tax Return for Electing Alaska Native Settlement Trusts
  • Form 1041-QFT, U.S. Income Tax Return for Qualified Funeral Trusts
  • Form 1120, U.S. Corporation Income Tax Return
  • Form 1120-C, U.S. Income Tax Return for Cooperative Associations
  • Form 1120-F, U.S. Income Tax Return of a Foreign Corporation
  • Form 1120- FSC, U.S. Income Tax Return of a Foreign Sales Corporation
  • Form 1120-H, U.S. Income Tax Return for Homeowners Associations
  • Form 1120-L, U.S. Life Insurance Company Income Tax Return
  • Form 1120-ND, Return for Nuclear Decommissioning Funds and Certain Related Persons
  • Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return
  • Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations
  • Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts
  • Form 1120-RIC, U.S. Income Tax Return for Regulated Investment Companies
  • Form 1120-SF, U.S. Income Tax Return for Settlement Funds
  • Form 1066, U.S. Real Estate Mortgage Investment Conduit (REMIC) Income Tax Return
  • Form 990-PF, Return of Private Foundation
  • Form 990-T, Exempt Organization Business Income Tax Return

Failure to Furnish Information Penalties

The failure to furnish information penalties imposed by IRC Sections 6038, 6038A, 6038C, 6039F, and 6677 will be abated, refunded, or credited, as appropriate, for the following 2019 and 2020 returns filed on or before September 30, 2022:

  • Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations
  • Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business
  • Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts
  • Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner

For Forms 5471 and 5472, the penalty relief appears to be available only for forms that are included with late-filed Forms 1065 and 1120. The penalty relief does not appear to apply to Forms 5471 and 5472 that are included with amended returns or with Forms 1040 and 1041.

Failure to File Partnership Return or S Corporation Return

The penalties imposed by IRC Sections 6698 and 6699 for failure to timely file or failure to show required information will be abated, refunded, or credited, as appropriate, for the following 2019 and 2020 returns filed on or before September 30, 2022:

  • Form 1065, U.S. Return of Partnership Income
  • Form 1120-S, U.S. Income Tax Return for an S corporation

Failure to File Correct Information Returns

The penalty imposed by IRC Section 6721(a)(2)(A) for failure to file correct information returns will be abated for the following information returns:

  • 2019 information returns that were filed on or before August 1, 2020, and that had an original due date of January 31, 2020, February 28, 2020 (if filed on paper), March 15, 2020, or March 31, 2020 (if filed electronically).
  • 2020 information returns that were filed on or before August 1, 2021, and that had an original due date of January 31, 2021, February 28, 2021 (if filed on paper), March 15, 2021, or March 31, 2021 (if filed electronically).

Exceptions

The penalty relief does not apply to any return for which the penalties for fraudulent failure to file (IRC Section 6651(f)) or fraud (IRC Section 6663) apply. It also does not apply to any penalties in an accepted offer in compromise under IRC Section 7122 or to any penalty settled in a closing agreement under IRC Section 7121 or as finally determined in a judicial proceeding.

Will the September 30 Deadline for Filing Returns be Extended?

The American Institute of Certified Public Accountants (AICPA) and the National Association of Enrolled Agents (NAEA) have both written a letter to the IRS asking for the September 30, 2022, filing deadline to be pushed back. The AICPA’s letter points out that the looming extended due dates for filing 2021 return will make it difficult for taxpayers to obtain sufficient assistance to file 2019 and 2020 returns by September 30, and asks that the deadline be changed to December 31, 2022. The NAEA’s letter further points out that “five weeks is simply not enough time for those non-filers who would be motivated by the penalty relief to file their returns,” and requests the deadline be changed to November 30, 2022.

It is anybody’s guess whether or not the IRS will change the September 30 deadline, but kudos to the AICPA and NAEA for asking. A September 30 deadline will make it very difficult for tax professionals to prepare eligible 2019 and 2020 returns and still get extended 2021 returns filed on time.

For more information about this penalty relief, contact us. We are here to help.

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Mark Watson

Mark Watson

Partner-in-Charge, Tax Quality and Risk Management

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Mark Watson, CPA, CFP, joined Weaver in 2013 and has more than 25 years of experience providing tax compliance and…

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