Tax Tip Tuesday: $1.2 Billion in Penalty Relief

Tax Tip Tuesday

If you are one of the 1.6 million American taxpayers who filed your personal or business taxes late for either 2019 or 2020 and incurred penalties, the IRS is about to make it rain! 

Indeed!  IRS is offering penalty relief to most people and businesses who file or filed certain 2019 or 2020 returns late. The relief will be in the form of refunds or credits.

The IRS is going a step further to help the taxpayers who have already paid these penalties by providing automatic refunds of payments which are expected to be completed by the end of September. Again, these are automatic payments, so there is no need to call.

This results in the Internal Revenue Service waiving $1.2 billion in fees levied against American taxpayers who were late in filing their returns.

If you still have not filed either your 2019 or 2020 personal or business tax return, you, too, can benefit from this free pass of forgiveness if you file your return by Sept. 30, 2022.  So while it may not feel like “relief” to you, if you calculate how much money it would’ve cost you in penalties and late fees, you are definitely getting a free pass equal to a chunk of money you don’t have to pay.

The relief, which applies to the penalty imposed for failing to file, 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 Notice 2022-36 which can be found on the IRS.gov website.

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.

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.

Part of the intention with the automatic refunds of penalties is to enable IRS to focus its resources on processing backlogged tax returns and taxpayer correspondence in an effort to return to normal operations for the 2023 filing season.  (Fingers crossed!)

If you want to take advantage this free pass from IRS for your 2019 or 2020 tax return, call me at 301-714-2071.  But do it soon because the deadline to file is Sept. 30, 2022! You can learn more about  Saunders Tax & Accounting at www.SaundersTax.com.  Our passion is for you to experience a Less Taxing Life and More Prosperous Solutions.

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