This fall, many Americans may receive additional refunds from the IRS. Such refunds would be issued if they previously had a late filing penalty for 2019 & 2020. Notice 2022-36 abates the penalties for a list of forms; the list is on the notice; you will also find it in my previous post. In addition, in Notice 2022-36, the agency said that those assessed a late filing penalty on their 2019 or 2020 tax returns would get an automatic refund if they paid the penalty or a credit to their account if they filed but didn’t pay. In total, approximately $1.2 billion will be refunded or credited.

The agency said the goal is to provide relief to individuals and businesses affected by the pandemic. It will also allow the IRS to focus its resources on processing pending tax returns and taxpayer letters to help return to regular business for the 2023 tax season.

“During the pandemic, the IRS has worked hard to support the state and help people in various ways,” said IRS Commissioner Chuck Rettig. “The penalty relief issued today is yet another way the agency supports people during this unprecedented time. This penalty relief will be automatic for people or businesses who qualify; there’s no need to call.”

Form 3520, annual return, transactions, foreign trusts, receipt, foreign gifts, tax form, gift, bequest, abroad

Relief is Automatic – No Additional Filing is Necessary

The reduction of the penalties will be automatic for eligible individuals or businesses; the taxpayer will automatically receive that relief without having to call or send any correspondence to the IRS to take advantage of that relief.

The IRS generally assess a penalty of 5% per month and up to 25% of the unpaid tax when the taxpayer files their federal income tax return late. This relief applies to forms in the Forms 1040 and 1120 series and others listed in Notice 2022-36, published today on IRS.gov.

To be eligible for this relief, the taxpayer must file any qualifying tax return by September 30, 2022.

In addition, the IRS offers penalty relief to banks, employers, and other businesses that are required to file various information returns, such as those in the 1099 series.

The notice also details relief for filers of various international returns, such as those reporting transactions with foreign trusts, receipt of foreign gifts, and interests in foreign companies. To be eligible for this relief, the taxpayer must file any qualifying tax return by September 30, 2022.

The cancellation of the penalty is automatic, the agency states. This fact means that qualified taxpayers do not have to apply if they have already filed returns for those years, although such persons filed them late. As a result, those who have been assessed late filing penalties but have not yet paid them will have these penalties abated. In addition, taxpayers will receive a refund if they have already paid them.

Nearly 1.6 million taxpayers who have already paid the penalty will receive more than $1.2 billion in refunds. Most such repayments will be issued to taxpayers by the IRS to receive their refund by the end of September.

Penalty relief is not available in certain situations, such as when a taxpayer filed fraudulent tax returns or used a false statement, when penalties are part of an accepted offer in a compromise or final agreement, or when a court ultimately imposes penalties. For more details, see Notice 2022-36, available at IRS.gov.

This relief is limited to penalties identified explicitly in the notice as eligible for relief. Other penalties, such as a penalty for non-payment, are not covered by this notice. But taxpayers can use existing penalty relief procedures for these ineligible penalties, such as seeking relief using a reasonable cause letter or the First Time Abate Program. Visit IRS.gov/penaltyrelief for details.

“Penalty relief is a complex issue for the IRS to administer,” said IRS Commissioner Chuck Rettig. “We have been working on this initiative for months after the concerns we heard from the taxpayers, the community.

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