The Internal Revenue Service is providing 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.
As part of the effort Wednesday, the IRS issued
Along with providing relief to both individuals and businesses affected by the COVID-19 pandemic, the IRS will be able to focus its resources on processing backlogged tax returns and taxpayer correspondence to help return to normal operations for the 2023 filing season.
"Throughout the pandemic, the IRS has worked hard to support the nation and provide relief to people in many different ways," said IRS Commissioner Chuck Rettig in a statement. "The penalty relief issued today is yet another way the agency is supporting people during this unprecedented time. This penalty relief will be automatic for people or businesses who qualify; there's no need to call."
The relief applies 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. This relief applies to forms in both the Form 1040 and 1120 series, as well as others listed in
To qualify for the relief, any eligible income tax return must be filed on or before Sept. 30, 2022.
The IRS is also offering penalty relief to banks, employers and other businesses required to file various information returns, such as those in the 1099 series. To qualify for relief, eligible 2019 returns must have been filed by Aug. 1, 2020, and eligible 2020 returns must have been filed by Aug. 1, 2021.
As both deadlines fell on a weekend, a 2019 return will still be considered timely for purposes of relief provided under the notice 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. The notice provides details on the information returns that are eligible for relief.
The notice also provides details on relief 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 the relief, any eligible tax return needs to be filed on or before Sept. 30, 2022.
The tax penalty relief applies broadly, but there are some exceptions, according to an email from Wolters Kluwer Tax & Accounting. The penalty relief is available for Form 1040 and related forms, as well as Form 1041 and related forms, Form 1120 and related forms, Form 1066, Form 990-PF and related forms. It also applies to some international information returns, including Forms 5471 and 3520. For businesses it applies to Forms 1065 and 1120-S.
The relief also relieves penalties for failure to timely file certain information returns that meet the following requirements:
- 2019 information returns filed on or before Aug. 1, 2020, with an original due date of Jan. 31, 2020, Feb. 28, 2020 (if filed on paper) or March 31, 2020 (if filed electronically), or March 15, 2020; and
- 2020 information returns filed on or before Aug. 1, 2021, with an original due date of January 31, 2021, February 28, 2021 (if filed on paper) or March 31, 2021 (if filed electronically), or March 15, 2021.
However, there are some exceptions. The penalty relief does not apply to any penalties not specifically listed in the notice, nor to fraud situations. It also doesn't apply to an accepted offer in compromise, a settled closing agreement or a finally determined judicial proceeding.
The IRS notice does offer some penalty relief for late filing of some types of Form 990 returns, but not all. it lists Form 990-PF, "Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation;" and Form 990-T, Exempt Organization Business Income Tax Return (and Proxy Tax Under Section 6033(e))." However, other forms in the 990 series are not listed and that means the majority of nonprofits will still be facing stiff penalties.
"Nonprofit organizations filing Form 990 get no relief," said Monica Stern, a CPA in Phoenix who told Accounting Today she has reached out to the IRS about the notice. "This is an incredible injustice. They suffered as much or more than businesses during COVID-19 and in dealing with the IRS overload. The penalties for these organizations ranged from $20 to $100 per day for late filing. Penalties have since increased slightly. I have a client with a penalty of over $24,000 for a late 990. They have $33,000 in the bank and owe credit cards of $32,000. They converted from desktop QuickBooks to online QuickBooks to allow remote access due to COVID-19. It did not go well and the bookkeeper was seriously ill, therefore delaying the filing of the 990. Should they not get automatic relief as well?"
Another tax preparer welcomed the relief from the IRS. "I cannot tell you how much this helps this poor little tax business," said Steve Cairns, an enrolled agent with Advisor Tax Services in Stowe, Vermont. "The arrival of the pandemic nearly crippled my business. My wife and new partner/successor had to abandon our office of 20 years and work from home. The governor of Vermont declared tax practitioners 'non-essential' businesses and we were off to the race to the bottom. As always happens, our obligations as preparers ran up against the availability of time, energy and support from others. We were unable to file several extensions. Even though I tried like hell, I still felt responsible for this breakdown. So I can honestly thank the IRS for this relief. It was desperately needed by the tax practitioner industry facing a no-win situation."
