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Question: Is there any penalty relief for the failure to timely pay penalty when an employer files for a refund for the employee retention credit (ERC) and, as a result, must amend either the 2020 or 2021 tax return to reduce the wage deduction by the amount of the ERC for the year?

Answer: Yes. The IRS has specifically mentioned penalty relief in Notice 2021-49 which says, “To the extent that an employer files an adjusted or amended return to reflect these clarifications and consequently owes additional tax, any penalties for failure to timely pay or deposit tax will not apply if the taxpayer can show reasonable cause and not willful neglect for those failures.” See page 20 at the end of the opening paragraph for Section IV.

Furthermore, the IRS has issued IR-2022-89 on April 18, 2022, reminding taxpayers of penalty relief related to claims for the ERC. It refers to the penalty relief mentioned in Notice 2021-49 and reminds taxpayers that they may also qualify for administrative relief from penalties for failing to pay on time under the IRS’s First Time Penalty Abatement program.