By: Rick Spires, CPA
Did the unexpected events of 2020 wreak havoc on your tax compliance? If you’re one of the many U.S. taxpayers who didn’t file an income tax return for 2019 or 2020 on time, you’re in luck. For both of these tax years, the IRS is giving late filers a break on the penalties that usually accompany failure to submit a timely tax return.
The relief is offered as part of the emergency declaration that went into effect on March 13, 2020, in response to COVID-19. That declaration included language instructing the Secretary of the Treasury to “provide relief from tax deadlines to Americans who have been adversely affected by the COVID-19 emergency,” which the agency did in a series of notices that delayed filing deadlines, among other actions.
As long as you file a return for the untimely filed year — or years, if you’ve not yet filed for either one — by September 30, 2022, you can qualify for the automatic penalty relief the IRS announced with Notice 2022-36. Filing by the September deadline earns you a free pass on the failure-to-file penalty you’d otherwise owe.
The relief is available for individual filers, trusts and estates, corporations, partnerships, self-employed people, S-corporations, nonprofits, and numerous other types of organizations required to file income tax returns.
For those who have already paid a penalty for filing these forms beyond the deadline, the IRS will automatically refund or credit your account for the amount of the penalty.
Relief for other types of filers
Unexpected penalty relief isn’t limited to income tax returns; information returns related to international matters are eligible for the same relief that income tax filers receive. The deadline is September 30, 2022, to file late returns penalty-free if you still need to report:
- Receipt of foreign gifts
- Ownership of foreign trusts
- Transactions with foreign trusts
- Ownership interests in foreign corporations
Certain other filers who must submit information returns including employers, banks, and some additional types of businesses specified in Notice 2022-36 also get a break, but not the identical one. This group of filers can escape the late filing penalty if their 2020 return was filed by August 2, 2021. Information returns for tax year 2019 won’t incur the failure-to-file penalty if they were filed by August 3, 2020.
Exceptions to broad relief
The IRS is extending broad relief to taxpayers with late returns, but the break from these specific penalties isn’t a blanket exemption from fines for noncompliance with the tax code.
Penalties determined in a judicial proceeding or in a closing agreement under section 7121 are not eligible for relief offered in Notice 2022-36. The relief also does not cover penalties for fraud or fraudulent failure to file, nor does it apply to penalties included in an accepted offer in compromise. Only penalties that are specifically named in the notice qualify for the relief.
It’s not just you…
While the announcement of relief comes as a great relief to millions of taxpayers, it’s also a break for the IRS in a way. In the chaos of the pandemic’s first two years, the agency was overwhelmed and got farther behind in processing returns than ever before. With millions of returns filed but still unprocessed, some taxpayers were incurring penalties for tax returns they’d submitted long ago that remained lost in a limbo of delay.
By offering blanket forgiveness for untimely filing, the IRS buys time to help it fully dig out from the huge backlog that’s been weighing it down. There’s already been a lot of progress, but this step will offer further relief to the agency itself — reducing the time lost to calculating late fees and addressing the many challenges to penalties applied inappropriately for returns submitted timely.
This break is good news, to be sure, but it won’t make taxes any less complicated. For knowledgeable guidance that can simplify tax compliance and help you craft a strategic approach to minimize your long-term tax burden, reach out to the experienced tax professionals at Mauldin & Jenkins.