To qualify, eligible income tax returns must be filed by September 30, 2022.

On August 24 the Internal Revenue Service announced that it is granting penalty relief to most people and businesses that, during the COVID-19 period, were late in filing their 2019 or 2020 income tax returns.

The relief applies to the failure-to-file penalty. The penalty is typically assessed at a rate of 5% per month and up to 25% of the unpaid tax when a federal income tax return is filed late. This relief applies to returns in both the Form 1040 and 1120 series, Form 1065, as well as others listed in IRS Notice 2022-36.

In addition to failure-to-file penalty relief for income tax returns, the IRS is granting relief for international information return penalties that apply to businesses for 2019 and 2020. Relief is not currently available to individuals who are required to file such international information returns; therefore, individuals should carefully consider other reporting options.

To qualify for this relief, any eligible income tax return must be filed on or before September 30, 2022.

The IRS said it is issuing more than $1.2 billion in refunds or credits to 1.6 million taxpayers who already paid those penalties, and that many of the payments will be completed by the end of September.

“This penalty relief will be automatic for people or businesses who qualify,” said IRS Commissioner Chuck Rettig. “There’s no need to call.”

Exceptions. The penalty relief does not apply to any penalties that are not specifically identified in the notice, and it is not available for fraudulent failure-to-file penalties, fraud penalties, penalties compromised as part of an offer in compromise, or penalties agreed to in a closing agreement or as determined in a judicial proceeding.

Information Returns. In addition, the IRS is providing penalty relief to banks, employers and other businesses required to file various information returns, such as those in the 1099 series. To qualify for relief, the notice states that eligible 2019 returns must have been filed by August 1, 2020, and eligible 2020 returns must have been filed by August 1, 2021. Because both deadlines fell on a weekend, 2019 information returns filed by August 3, 2020, and 2020 information returns filed by August 2, 2021, will be considered timely for purposes of relief provided under the notice.

Penalty Relief Explained. In announcing the penalty relief (see the IRS announcement), the IRS noted that the relief measure will allow the agency to focus its resources on processing backlogged tax returns and taxpayer correspondence to help return to normal operations for the 2023 filing season.