Due to COVID impact on the struggling taxpayers and as a help to the IRS to return to the normal operations for 2023 tax filing season, in Notice 2022-36 (further ‘’Notice’’) the IRS has provided the relief for certain taxpayers (both individuals and businesses) from certain failure to file penalties and certain international information return (IIR) penalties with respect to tax returns for 2019 and 2020 tax years. To be eligible for the penalty relief, taxpayers must file qualified tax return on or before September 30, 2022. The penalty relief is automatic, and there is no requirement of applying for a penalty relief.
Tax Returns that are eligible for the penalty relief:
The IRS will not assess penalties for failure to file tax returns under IRC Section 6651 (a) (1), and to the extent previously imposed, penalties will be abated, refunded, or credited for the following tax forms:
- Form 1040, 1040-C, 1040-NR, 1040-NR-EZ, 1040 (PR), 1040-SR, and 1040-SS;
- Form 1041, 1041-N, and 1041-QFT;
- Form 1120, 1120-C, 1120-F, 1120-FSC, 1120-H, 1120-L, 1120-ND, 1120-PC, 1120-POL, 1120-REIT, 1120-RIC, and 1120-SF;
- Form 1066; and
- Form 990-PF, and 990-T.
The IRC will also not assess penalties under IRC Sections 6038, 6038A, 6038C, 6039F and 6677 for failure to file the tax forms listed below, and the imposed penalties will be automatically abated:
- Form 5471, and/or 5472 attached to a late filed Form 1120 or 1065; and
- Form 3520 and Form 3520-A.
Further, penalties for failure to timely file and failure to show the required information on Form 1065 (under IRC Section 6698(a)(1) and under IRC Section 6698(a) (2) respectively) and on Form 1120-S (under IRC Section 6699(a)(1) and under IRC Section 6699(a) (2) respectively) are also qualified for the penalty relief provided that Forms 1065 and Forms 1120-S are filed on or before September 30th, 2022.
Additionally, the IRS has provided the penalty relief to banks, employers and other businesses required to file various information returns under IRC Section 6721(a)(2)(A). To qualify for the penalty relief, 2019 returns must have been filed on or before August 1, 2020, and eligible 2020 returns must have been filed on or before August 1, 2021.
Penalties that are not available for the relief:
The penalty relief is not available to any return to which the penalty for fraudulent failure to file under IRC Section 6651(f) or the penalty for fraud under IRC Section 6663 applies. Furthermore, the penalty relief does not apply to any penalties accepted in offer in compromise under IRC Section 7122, to any penalties that a part of a closing agreement under IRC Section 7121, and if penalties were finally determined in a judicial proceeding.
It is important to mention that the penalty relief applies only to the penalties listed in the Notice. For example, the Notice does not include the failure to pay penalty under IRC Section 6651 (a) (2). Beyond that, U.S. individual taxpayers who are required to report foreign assets for FBAR (Report of Foreign Bank and Financial Accounts) and FATCA (The Foreign Account Tax Compliance Act) purposes are not qualified for the penalty relief. Neither FBAR nor Form 8938 are included into the Notice. Further, the US taxpayers who are required to file information return on Form 8858 with respect to foreign disregarded entities and foreign branches are also not benefiting from the Notice. While the IRS included Form 5471 to the list, Form 8865 was not included.