In late August, the IRS made waves by announcing automatic penalty relief for late-filed returns. This is for tax years 2019 and 2020, which must be filed before a revised deadline to qualify, but the relief is automatic and applies to several returns, including personal 1040s and several corporate forms, such as 1120 and 1099s.

This new initiative by the IRS is the latest in the Service’s attempt to ease the burden of the disruptions created by Covid. The 2019 and 2020 filing seasons were riddled with obstacles for taxpayers trying to file their returns. Many companies were shut down or operating at reduced capacity resulting in delays in sending out the information needed to file. The IRS itself experienced shutdowns preventing taxpayers from getting questions answered or even being able to file. At the time of this writing, the IRS is still struggling to get caught up with a backlog of unprocessed returns and responses to notices being ignored.

To What Penalty Does This Apply

The penalty relief is only available for the failure-to-file penalty or the penalty related to not filing a return timely. This penalty is generally 5% of the tax liability for each month the return is late, up to 25% of the total liability.

Notably, this relief does not apply to failure-to-pay, accuracy, or other penalties. So even if a taxpayer filed their 2019 return and got the automatic penalty relief for late filing, they may still be liable for additional penalties associated with that return.

What Company Returns Are Eligible?

Corporations (including S-Corps) and partnerships that have not filed the 2019 or 2020 returns can still get penalty relief if they file by September 30, 2022. This includes forms 1120, 1120-S, and 1065 forms.

Informational returns for 2019, such as all 1099 forms filed by August 3, 2020, will be eligible for penalty relief. Information returns for 2020 filed by August 2, 2021, will also be eligible.

What Individual Returns Are Eligible?

Individuals are likewise getting penalty relief for late-filed 2019 and 2020 returns. The form 1040 must be filed by September 30, 2022, to qualify, but similar to the relief for corporations, the penalty abatement will be automatic. This also applies to trust and estate returns as well as non-profit returns.

If you have questions regarding IRS penalties, contact us today to set up a time to talk.