IRS Provides Taxpayers With COVID-19-Related Penalty Relief For Certain Tax Returns

Many taxpayers are still struggling financially from the effects of the COVID-19 pandemic. In response, the IRS recently announced a new tax relief package that should be helpful to many of these families. Under these relief measures, individuals and businesses who failed to file certain 2019 and 2020 tax returns on time will be eligible for penalty abatement. Furthermore, those who already paid these penalties will automatically qualify for a refund or credit. It is hoped that besides offering financial relief to many taxpayers in the U.S., these measures will also allow the IRS to focus its resources on processing backlogged tax returns and taxpayer correspondence, so that normal tax operations can be resumed for the 2023 filing season.

Penalty Relief

Individuals and businesses who were unable to file Forms 1040 and 1120 in 2019 or 2020 before the deadline could now qualify for penalty relief. This measure specifically applies to the failure to file penalty, which is usually assessed at a rate of five percent every month, up to 25 percent of the unpaid tax.

The IRS is also offering penalty relief to banks, employers, and other businesses that are required to file information returns. For these entities to qualify for relief, however, they must have filed eligible 2019 returns by August 1st of 2020 and 2020 returns by August 1st of 2021. This is also true for individuals and companies that filed international information returns, like reports of transactions with foreign trusts, reports of the receipt of foreign gifts, or reports of ownership in a foreign corporation. However, to qualify for this relief in these cases, an eligible tax return must have been filed before September 30th of 2022.

Refunds and Credits

Taxpayers who were already assessed fines for failing to submit their 2019 or 2020 tax returns on time could now be eligible for the receipt of a refund or tax credit. According to the IRS, nearly 1.6 million taxpayers will qualify for more than $1.2 billion in refunds and credits. These payments are automatic, so eligible taxpayers don’t have to apply for them. If a taxpayer was already assessed a penalty, then it should be abated. If the penalty has already been paid, then the taxpayer should automatically receive a credit or refund.

Penalty Relief Limitations

Penalty relief isn’t available to all taxpayers, including in situations in which:

• A fraudulent return was filed;
• The penalties assessed were part of an accepted offer in compromise or closing agreement; or
• The penalties were determined by a court.

Relief is also limited to only certain kinds of penalties. The failure to pay penalty, for instance, isn’t eligible for relief, at least under this tax relief package. In some cases, taxpayers can use other existing penalty relief procedures for these fines, like applying for relief under the reasonable cause exception.

Are You Eligible for Tax Relief?

If you think you may qualify for penalty abatement or another form of COVID-19-related tax relief, call dedicated CPA, former FBI Special Agent, and experienced Florida unfiled taxes lawyer Ronald Cutler, P.A. for help. You can set up a free, one-on-one consultation today by calling 386-490-9949.

Sources:

irs.gov/newsroom/covid-tax-relief-irs-provides-broad-based-penalty-relief-for-certain-2019-and-2020-returns-due-to-the-pandemic-1-point-2-billion-in-penalties-being-refunded-to-1-point-6-million-taxpayers

irs.gov/irb/2022-36_IRB#NOT-2022-36