Taxpayers who missed the Sept. 30 filing deadline for COVID-19 penalty relief may still be eligible for limited penalty relief if they file in the next few months, according to the IRS. That is because, tucked into the IRS’s Sept. 22 press release reminding taxpayers of the Sept. 30 deadline, was a provision stating that for 2019 and 2020 individual and business returns filed after the deadline, failure-to-file penalties would be calculated from Oct. 1, 2022.
The sixth paragraph of the press release (IR-2022-164) states that those who file during the “first few months” after the Sept. 30 cutoff will still qualify for partial penalty relief. The IRS explained that the partial penalty relief will be the result of how it will calculate failure-to-file penalties. It said that for eligible taxpayers who did not file their 2019 and 2020 returns by the cutoff date the IRS will treat their failure-to-file penalties as accruing from Oct. 1, 2022, not the dates the returns were initially due. Relief from failure-to-file penalties is automatic and taxpayers do not need to attach a statement or other documents to their returns to receive it.
The IRS usually assesses the failure-to-file penalty at a rate of 5% per month, or portion of a month, up to 25% of the unpaid tax when returns are filed late. Therefore, taxpayers filing returns in the first few months after Oct. 1 will pay smaller failure-to-file penalties than if they waited until later. If the taxpayer has not filed by the end of February 2023, the failure-to-file penalty maxes out at 25%.
Finally, the IRS noted that taxpayers who late-file their 2019 and 2020 returns will only receive partial relief from their failure-to-file penalties. That means the failure-to-pay penalty and interest will still apply to any unpaid tax and will begin to accrue on the original due date for the return. The failure-to-pay penalty is normally 0.5% per month and the interest rate increased from 5% to 6% Oct. 1.
The IRS said partial relief from failure-to-file penalties will be available to the same types of income tax returns that are listed in Notice 2022-36, which says the following income tax returns are eligible for relief:
Form 1040, U.S. Individual Income Tax Return; Form 1040-C, U.S. Departing Alien Income Tax Return; Form 1040-NR, U.S. Nonresident Alien Income Tax Return; Form 1040-NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents; Form 1040 (PR), Federal Self-Employment Contribution Statement for Residents of Puerto Rico; Form 1040-SR, U.S. Tax Return for Seniors and Form 1040-SS, U.S. Self-Employment Tax Return (Including the Additional Child Tax Credit for Bona Fide Residents of Puerto Rico)
Form 1041, U.S. Income Tax Return for Estates and Trusts; Form 1041-N, U.S. Income Tax Return for Electing Alaska Native Settlement Trusts and Form 1041-QFT, U.S. Income Tax Return for Qualified Funeral Trusts
Form 1120, U.S. Corporation Income Tax Return; Form 1120-C, U.S. Income Tax Return for Cooperative Associations; Form 1120-F, U.S. Income Tax Return of a Foreign Corporation; Form 1120-FSC, U.S. Income Tax Return of a Foreign Sales Corporation; Form 1120-H, U.S. Income Tax Return for Homeowners Associations; Form 1120-L, U.S. Life Insurance Company Income Tax Return; Form 1120-ND, Return for Nuclear Decommissioning Funds and Certain Related Persons; Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return; Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations; Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts; Form 1120-RIC, U.S. Income Tax Return for Regulated Investment Companies and Form 1120-SF, U.S. Income Tax Return for Settlement Funds (Under Section 468B)
Form 1066, U.S. Real Estate Mortgage Investment Conduit (REMIC) Income Tax Return
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)).
Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.