Calling all non-filers and late filers: you may be eligible for penalty abatement pursuant to recent IRS guidance for the 2019 and 2020 tax years. See Notice 2022-36. Recognizing the hardships and unique circumstances created by the worldwide Covid pandemic, the IRS will waive failure-to-file penalties for 2019 and 2020 Form 1040 tax returns filed after the due date. For those who have not yet filed, the returns must be filed on or before September 30, 2022, to be eligible.
No action is needed by eligible taxpayers to obtain the abatement. If payment has already been made, the taxpayer will receive a refund or credit, as appropriate. The IRS has estimated more than $1.2 billion will be refunded or credited, affecting close to 1.6 million taxpayers.
The sweeping relief to taxpayers is expected to be beneficial to the IRS also, by allowing the Service to focus its resources more effectively.
Failure-to-file penalties accrue at 5% per month, capping at 25% of the tax balance due. The IRS can be strict regarding requests for penalty abatement, and it is a tremendous benefit to taxpayers for penalties to be abated without needing to show reasonable cause or that they otherwise qualify for relief.
Taxpayers and tax professionals should check to see if other tax returns need to be filed or could be affected by IRS guidance. For example, certain corporate returns and international information returns, such as Form 3520, required for specific foreign income or inheritances, are included in the guidance.
There are exceptions for fraud and returns that are part of an accepted Offer in Compromise. In addition, only the penalties described in the guidance are eligible. Other penalties may still apply, such as for late payment, and taxpayers may request relief through the usual procedures.
This article is not to be construed as legal or tax advice and is for general information purposes only. For advice specific to your situation, please consult your attorney or tax professional.