IRS Grants Penalty Relief for Certain Late Filed Returns for Tax Years 2019 and 2020 (Notice 2022-36)

calendar iconSeptember 9, 2022

Notice 2022-36 Summary

On August 24, 2022, the Internal Revenue Service (IRS) released Notice 2022-36 to provide penalty relief to nearly 1.6 million taxpayers that faced hardships when filing their 2019 and 2020 tax returns due to the COVID-19 pandemic. The IRS will automatically refund or credit taxpayer accounts for late filing penalties assessed on their prior year returns. It is expected that this will result in $1.2 billion in forgiven penalties and ease the backlog of notices and correspondence the IRS has accumulated.

Who is Eligible for 2019 and 2022 Tax Penalty Relief?

The only requirement to be eligible for this refund is to have any eligible income tax returns filed on or before September 30, 2022. Taxpayers do not need to apply for this relief, and if penalties were already paid, a credit or refund will be distributed.

Which Tax Returns Qualify for Penalty Relief?

The Notice specifies which tax returns, information returns and international tax reporting forms qualify for penalty relief.

  • The IRS will remove Failure to File penalties assessed on: Form 1040, Form 1041, Form 1120 and Form 990-PF.
  • The IRS will remove penalties for Failure to Timely File and Show Required Information assessed on Form 1120-S and Form 1065.
  • The IRS will remove penalties for Failure to File certain international information returns such as Form 5471 and Form 5472 filed with Form 1120 or Form 1065 (but not if filed with Form 1040).

Which Tax Returns Do Not Qualify for Penalty Relief?

Not all international information returns or other tax returns are covered by this Notice. For example, late filed Forms 709, annual gift tax returns and Forms 990 are not eligible for relief, nor are late filed Forms 8865 for individuals investing in foreign partnerships. Notice 2022-36 is very specific as to which returns and forms will be granted penalty relief. The Cherry Bekaert Federal Tax Controversy team and International Tax Services team have reached out to the IRS to request additional relief or clarification as to some of the forms and returns not covered in the Notice.

Michael Cornett, a Director in our International Tax Services group, shares that “the relief granted was a surprise and will help a lot of taxpayers. However, it did not address the use of amended returns to file late Forms 5471 or 5472. Hopefully, additional guidance will be provided to address this issue as well as other issues.”

Also note, Notice 2022-36 does not provide relief from late payment penalties that are assessed when a tax liability is not paid timely.

Questions? Cherry Bekaert Can Help

A key provision to securing the penalty relief offered in Notice 2022-36 is meeting the September 30, 2022, deadline for filing delinquent 2019 and 2020 returns. If you have questions regarding a late tax return or have been assessed penalties for late filing, reach out to your Cherry Bekaert tax advisor to see if you qualify for relief from Failure to File penalties.

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