Late Filing Penalties to be Waived for Some Taxpayers

Certain late tax filers are about to see some relief. The IRS is abating the late filing penalties for various tax returns for 2019 and 2020 that were filed late or have not yet been filed. This announcement came on August 24, 2022, when the IRS issued Notice 2022-36.

Let’s take a look at why penalties are being waived, which tax returns are affected and what you can expect next.

Why Are Late Filing Penalties Being Waived?

The shutting down of IRS offices in 2020, due to the pandemic, created a tremendous backlog in processing correspondence and paper-filed tax returns. Extending automatic relief by abating the late filing penalties will reduce the backlog significantly.

Which Tax Returns Are Affected?

The automatic penalty relief extends to 2019 and 2020 returns that were filed late or have not yet been filed, as long as they are filed by September 30, 2022.

The affected tax returns are:

• Form 1040, Individual Income Tax Return (includes all 1040 forms)
• Form 1041, U.S. Tax Return for Estates and Trusts (includes all 1041 forms)
• Form 1065, U.S. Return of Partnership Income
• Form 1066, U.S. Real Estate Mortgage Investment Conduit
• Form 1120, U.S. Corporate Income Tax Return (includes all 1120 forms)
• Form 1120S, U.S. Income Tax Return for an S-Corporation
• Form 990-PF, Return of Private Foundation
• Form 990-T, Exempt Organization Business Income Tax Return
• Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts
• Form 3520-A, Annual Information Return of Foreign Trust with a U.S. Owner
• All information returns as defined in IRC Section 6724(d)(1) (e.g., Forms 941 and 940)

Incidentally, the penalties for late filing of Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, and Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business, are also abated for forms included with late-filed Forms 1120 and 1065. These penalties are normally $10,000 per late filed return.

What to Do Next

If you have been assessed late filing penalties for any of the returns listed above, you do not need to take any action. The IRS will automatically abate any late filing penalty that was assessed, and refund the assessed penalties for taxpayers who have paid the penalties. In situations where the IRS has already abated a penalty or settled the tax amount due for less than the assessed amount, no refunds will be issued. So, if you filed late and have paid your full tax liability, including late filing penalties, you should expect to get a refund in the coming weeks.

If you have not yet filed an affected return for 2019 or 2020, you need to get the return filed by September 30, 2022.

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