IRS Surprise Announcement: Automatic Abatement of Failure to File Penalties for Tax Year 2019 and 2020

Taxpayers affected by the Covid-19 pandemic will be relieved of certain listed failure-to-file penalties relating to 2019 and 2020 tax returns without having to request the relief. 

For income tax filers to qualify for this penalty relief, any “eligible income tax return” must be filed on or before September 30, 2022.

Common eligible returns include:

  • Form 1040, U.S. Individual Income Tax Return
  • Form 1041, U.S. Income Tax Return for Estates and Trusts; 
  • Form 990-PF, Return of Private Foundation;
  • Form 1120, U.S. Corporation Income Tax Return;
  • Form 1120-S, U.S. Income Tax Return for an S corporation, and
  • Form 1065, U.S. Return of Partnership Income.

Further, certain penalties will not be imposed for failure to timely file several international information returns, such as Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations.

Eligible return filers don’t need to apply for this relief. If the IRS has already assessed a late-filing penalty, it will be abated. If a filer has already paid a late-filing penalty, the filer will receive a credit or refund.

According to the IRS, nearly 1.6 million taxpayers will automatically receive penalty refunds or credits. Many of these payments will be completed by the end of September 2022, the IRS said.

Penalty relief isn’t available to taxpayers who 1) filed a fraudulent return, 2) accepted an offer-in-compromise that included penalties, 3) entered into a closing agreement with the IRS for an otherwise eligible 2019 or 2020 return, or 4) had penalties finally determined by a court.

This relief is limited to late/failure to file penalties. Other penalties, such as the failure-to-pay penalty, aren’t eligible. However, taxpayers may use existing penalty relief procedures, such as applying for relief under the reasonable cause criteria or the First-Time Abatement program, for any ineligible penalties.

If you would like additional information please contact your Gettry Marcus Advisor.