Republicans urge IRS to extend COVID penalty relief deadline

A group of Republicans on Congress' main tax committees sent a letter to the Internal Revenue Service and the Treasury Department asking them to extend the deadline for relief from COVID-19-related tax penalties from Sept. 30 until mid- to late November, agreeing with a request from the American Institute of CPAs.

House Ways and Means Committee ranking member Kevin Brady, R-Texas, and Senate Finance Committee ranking member Mike Crapo, R-Idaho, led their fellow Republicans on the two committees in a letter Monday addressed to IRS Commissioner Charles Rettig and assistant Treasury secretary for tax policy Lily Batchelder.

The letter comes in response to tax penalty relief announced by Rettig last month (see story). In Notice 2022-36, the IRS provided penalty relief to most individual and business taxpayers who filed their 2019 or 2020 returns late due to the COVID pandemic, while refunding $1.2 billion in penalties to nearly 1.6 million taxpayers who filed late. The relief applied to the penalty imposed for failing to file, which is usually assessed at a rate of 5% per month and up to 25% of the unpaid tax when a federal income tax return is filed late. It applies to forms in both the Form 1040 and 1120 series. To qualify for the relief, any eligible income tax return had to be filed on or before Sept. 30, 2022.

However, the GOP lawmakers believe that isn't giving taxpayers enough time to file their returns to qualify for the relief. "We have heard from both constituents and also large segments of the tax professional community that the deadline is simply too soon for some taxpayers," Brady and Crapo wrote. "The notice only provided 36 days (five weeks) for self-filers and practitioners to check their records and file any outstanding 2019 and 2020 tax returns."

Andrew Harrer/Bloomberg

They noted that for taxpayers who now realize they need to file their overdue returns, it will take time to gather information and other supporting documents and complete and file the applicable return, particularly if multiple years are involved. 

"In addition, we have heard from a number of taxpayers who continue to wait for various predicate returns (e.g., an amended individual income tax return) to be processed by the IRS, and who simply cannot file yet," they added.

They pointed out that taxpayers and tax practitioners are already busy during this condensed time period with existing return filing deadlines (such as the Sept. 15 deadline for pass-through entities, Sept. 30 for trusts and Oct. 15 for individuals and corporations). Inserting a Sept. 30 deadline into this time period would add to the burden for taxpayers and tax practitioners and limit the ability of taxpayers to qualify for the relief, the lawmakers argued, while increasing the compliance and paper-filing burden on the IRS, decreasing the number of taxpayers who come into full compliance, and harming taxpayers who are currently prevented from filing their tax returns. 

"Extending the relief deadline through mid-to-late November 2022, with whatever appropriate procedural guardrails are determined to be necessary, would provide needed time for more taxpayers to come into voluntary tax compliance without unduly burdening the IRS," they wrote. "Given that IRS IT e-filing systems are still available during this period before they are shut down for reprogramming for the next filing season, it should also not impair the IRS's efforts to prepare for and execute the upcoming 2023 tax filing season. We therefore urge [the] IRS to extend the Notice 2022-36 relief deadline to provide taxpayers, practitioners, and IRS more time to benefit from the relief, increase voluntary compliance, further reduce the IRS correspondence and paper return processing backlog, and help taxpayers who continue to feel the effects of the IRS's customer service challenges."

The AICPA welcomed the support from the lawmakers, pointing out that it had pointed out similar difficulties in a letter in late August outlining its concerns about the tight deadline of Sept. 30 provided in Notice 2022-36.

"We are grateful that the IRS recognized the need for penalty relief for taxpayers at a time when taxpayers, tax practitioners and the IRS are trying to recover and catch up following three years of a pandemic," said AICPA director for tax policy and advocacy Eileen Sherr in a statement Wednesday. "At a time when practitioners are working to meet the Sept. 30 deadline for trusts and the Oct. 15 deadline for individuals and corporations, it's just not reasonable to impose another deadline on them. We thank ranking members Crapo and Brady, as well as their colleagues, for their quick action in support of extending the deadline."

The AICPA has frequently advocated for tax penalty relief this year and in years past. On Jan. 10, the institute released a statement calling on the IRS to do more to provide penalty relief to taxpayers. That same month, the AICPA joined a coalition of 13 stakeholder groups urging the IRS to provide meaningful penalty relief to taxpayers.