Income Tax
Many Americans may receive an extra refund this fall from the Internal Revenue Service. Those who were assessed a late penalty on their ...
Aug. 25, 2022
Many Americans may receive an extra refund this fall from the Internal Revenue Service. Those who were assessed a late penalty on their 2019 or 2020 tax returns will receive an automatic refund if they have paid those fees, or a credit if they filed and haven’t yet paid, the agency said. In total, about $1.2 billion will be refunded or credited.
The agency says the goal is to provided relief to both individuals and businesses impacted by the pandemic, and also allow the IRS 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. “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 failure to file penalty. The penalty is typically 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 inNotice 2022-36PDF, posted today on IRS.gov.
To qualify for this relief, any eligible income tax return must have been be filed on or before September 30, 2022.
In addition, the IRS is providing 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, the notice states that eligible 2019 returns must have been filed by August 1, 2020, and eligible 2020 returns must have been filed by August 1, 2021.
Because both of these 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 August 3, 2020, and a 2020 return will be considered timely for purposes of relief provided under the notice if it was filed by August 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 this relief, any eligible tax return must be filed on or before September 30, 2022.
Relief is Automatic – No Additional Filing Necessary
The penalty relief is automatic, the agency said. This means that eligible taxpayers need not apply for it if they have already filed their returns for those years, but those returns had been late. Those who were assessed the late penalties, but had not yet paid them will have those fees abated. If a taxpayer has already paid them, they will receive a credit or refund.
As a result, nearly 1.6 million taxpayers who already paid the penalty are receiving refunds totaling more than $1.2 billion. Most eligible taxpayers will receive their refunds by the end of September.
Penalty relief is not available in some situations, such as where a fraudulent return was filed, where the penalties are part of an accepted offer in compromise or a closing agreement, or where the penalties were finally determined by a court. For details, seeNotice 2022-36PDF, available on IRS.gov.
This relief is limited to the penalties that the notice specifically states are eligible for relief. Other penalties, such as the failure to pay penalty, are not eligible. But for these ineligible penalties, taxpayers may use existing penalty relief procedures, such as applying for relief under the reasonable cause criteria or the First Time Abate program. VisitIRS.gov/penaltyrelieffor details.
“Penalty relief is a complex issue for the IRS to administer,” Rettig said. “We’ve been working on this initiative for months following concerns we’ve heard from taxpayers, the tax community and others, including Congress. This is another major step to help taxpayers, and we encourage those affected by this to review the guidelines.”
As an expert in taxation and IRS regulations, I bring a wealth of knowledge to shed light on the recent developments regarding income tax refunds and penalty relief. My understanding of the intricate details and implications of IRS policies allows me to provide comprehensive insights into the article dated August 25, 2022, by Isaac M. O'Bannon.
The article discusses a significant move by the Internal Revenue Service (IRS) to provide relief to Americans who faced late penalties on their 2019 or 2020 tax returns. The key takeaway is that individuals and businesses affected by pandemic-related challenges will receive an automatic refund or credit if they have paid the late fees or filed without payment. The total amount set for refund or credit is approximately $1.2 billion.
IRS Commissioner Chuck Rettig emphasizes that this penalty relief aims to support people during the unprecedented times of the pandemic. The primary objective is to alleviate the financial burden on individuals and businesses while enabling the IRS to prioritize processing backlogged tax returns and taxpayer correspondence for the upcoming 2023 filing season.
The specific focus of the relief is on the failure-to-file penalty, typically assessed at a rate of 5% per month, up to 25% of the unpaid tax when a federal income tax return is filed late. This relief extends to various forms, including those in the Form 1040 and 1120 series, as outlined in Notice 2022-36PDF, available on IRS.gov.
To qualify for the relief, eligible income tax returns must have been filed on or before September 30, 2022. Additionally, penalty relief is extended to banks, employers, and other businesses required to file information returns, such as those in the 1099 series. Eligible 2019 returns must have been filed by August 1, 2020, and eligible 2020 returns by August 1, 2021, with specific considerations for weekend deadlines.
The relief also encompasses filers of various international information returns, covering transactions with foreign trusts, receipt of foreign gifts, and ownership interests in foreign corporations. To qualify for this relief, eligible tax returns must be filed on or before September 30, 2022.
Crucially, the article highlights that the penalty relief is automatic, eliminating the need for additional filing. Taxpayers who have already filed their returns for the specified years but were late will receive automatic relief. Those who paid late penalties will either have fees abated or receive a credit or refund.
It's essential to note that penalty relief is not applicable in certain situations, such as fraudulent returns, accepted offers in compromise, closing agreements, or court-determined penalties. The relief is limited to the penalties specified in the notice, excluding other penalties like the failure-to-pay penalty.
This comprehensive understanding of the IRS's recent actions underscores the complexity of penalty relief administration and encourages affected taxpayers to review the guidelines provided in Notice 2022-36PDF, available on IRS.gov. For further information on penalty relief procedures, taxpayers can visit IRS.gov/penaltyrelief.
