$1.2 billion in penalties will be refunded to 1.6 million taxpayers

In late August, the Internal Revenue Service announced on its website that it had issued Notice 2022-36, which will provide penalty relief to most taxpayers who filed certain 2019 or 2020 tax returns late.

The IRS stated it will also help the estimated 1.6 million taxpayers who already paid these penalties. These taxpayers will automatically receive more than $1.2 billion in refunds or credits, which will be completed by the end of September.

The relief applies to the failure to file penalty, which is typically assessed at a rate of 5 percent per month, and up to 25 percent of the unpaid tax when a federal income tax return is filed late. It applies to forms in both the 1040 and 1120 series, as well as others listed in Notice 2022-36.

In order to qualify for this relief, eligible income tax returns must be filed on or before Sept. 30.

In addition, the IRS will provide penalty relief to banks, employers, and other businesses required to file various informational returns, such as those in the 1099 series.

To qualify for this relief, eligible 2019 returns must have been filed by Aug. 1, 2020, and eligible 2020 returns must have been filed by Aug. 1, 2021. However, since both of those deadlines fell on a weekend, a 2019 return will still be considered timely if it was filed by Aug. 3, 2020, and a 2020 return will be considered timely for purposes of relief provided under the notice if it was filed by Aug. 2, 2021.

Additional relief is available for filers of various international information returns, such as those reporting transactions with foreign trusts, receipt of foreign gifts, and ownership interests in foreign corporations.

To qualify for this relief, any eligible tax return must be filed on or before Sept. 30.

Penalty relief related to Notice 2022-36 is automatic, as eligible taxpayers need not apply. Penalties already accessed will be abated and if a penalty was paid, the taxpayer will receive a credit or refund.

IRS Commissioner Chuck Rettig noted that penalty relief is a complex issue for the IRS to administer.

“We’ve been working on this initiative for months following concerns we’ve heard from taxpayers, the tax community and others, including Congress,” Rettig said. “This is another major step to help taxpayers, and we encourage those affected by this to review the guidelines.”

In some situations, penalty relief is not available. These situations include:

• When a fraudulent return was filed
• Where the penalties are part of an accepted offer in compromise or a closing agreement
• When the penalties were finally determined by a court.

Penalties, such as failure to pay, are not eligible for relief through Notice 2022-36. Taxpayers penalized for these ineligible penalties may use existing penalty relief procedures, which include applying for relief under the reasonable cause criteria or the First-Time Abate program. Visit the IRS website for more details.