IRS Notice 2022 - 36 Penalty Relief

[Lee B]

The relief will apply to Forms in the 1040, 1120 and 1099 series.

"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 forms in both the Form 1040 and 1120 series, as well as others listed in Notice 2022-36, posted today on IRS.gov. 

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

"Relief is automatic; most of $1.2 billion in refunds delivered to eligible taxpayers by next month

Penalty relief is automatic. This means that eligible taxpayers need not apply for it. If already assessed, penalties will be abated. If already paid, the taxpayer will receive a credit or refund.

As a result, nearly 1.6 million taxpayers who already paid the penalty are receiving refunds totaling more than $1.2 billion. Most eligible taxpayers will receive their refunds by the end of September."

https://www.irs.gov/pub/irs-drop/n-22-36.pdf

I must say that this is unexpected!

[Lee B]

Note:  This applies to tax years 2019 and 2020.

[KATHERINE]

That is great!  I was thinking that about those who did not pay yet, they will stop the notice and remove the assessment from transcript, right?  

Thank you!

[Lee B]

23 minutes ago, KATHERINE said:

That is great!  I was thinking that about those who did not pay yet, they will stop the notice and remove the assessment from transcript, right?  

Thank you!

My reading is that this is relief for "failure to file" but not relief for "failure to pay"

[TAXMAN]

Do you think this will apply to a 990 for a fire department that file late with no tax due?

[Lee B]

1 hour ago, TAXMAN said:

Do you think this will apply to a 990 for a fire department that file late with no tax due?

Follow the link I provided and read page 5 & 6

[JohnH]

I read an article today that said IRS has no intention of extending penalty relief for 2019 and 2020 beyond Sept 30, 2022.  (They had been asked to do so due to the short time frame from the announcement to the specified date.

However, the article also stated that FTF penalties for these years will begin to run on Oct 1, 2022. The penalty clock is basically resetting as of that date for those two years  So it isn't a matter of falling off a cliff if the client misses the Sept 30 deadline - they would simply incur a one-month penalty for each month they are late (up to the max 5 months).

[Lion EA]

Where did you read that? I have some late 2020s that I'd love to wait 'til after 10/17.

[JohnH]

Here's the link to the article in the Journal of Accountancy on Sept 23, 2022.  The 7th paragraph is quite clear. (I counted singe sentences standing alone as a paragraph).  The source is certainly reliable, although nobody else I've read has mentioned this - most just imply that the return MUST be filed by Sept 30, 2022. I'd like to hear your thoughts, or any one else's, on whether there is any other way to interpret this.  If reliable, it will significantly alter my work schedule this week (for the better).

https://www.journalofaccountancy.com/news/2022/sep/penalty-relief-deadline-fast-approaches-2019-2020-tax-returns.html

 

Here's the operative paragraph:
"Although the time for the full penalty relief is running out for businesses and individuals that have not yet filed their 2019 or 2020 returns, those that miss the deadline but file during the first few months after the Sept. 30 cutoff will still qualify for partial penalty relief. For eligible returns filed after the cutoff date,  penalties will start accruing on Oct. 1 instead of the return's original due date. The IRS noted in the news release that the late-filing penalty accrues based on each month or part of a month that a return is late, so filing sooner will limit any charges that apply."

 

[Lion EA]

That is huge, John. Thank you.

[JohnH]

I'm puzzled a bit by the lack of discussion of this distinction in other accounting & tax publications.  I've read several articles by law firms purporting to "explain in detail" how this all works, but every single one of them leaves the reader thinking Sep 30 is a "drop dead" date.  (Perhaps they are trying to create a sense of urgency, which also might translate into premium billing for the work?)

Yet, at the same time the Journal of Accountancy is certainly a reliable source so I have no reason to doubt their analysis.  The only thing I can surmise is how averse many people are to "penalties" in the generic sense.  For example, a FTP penalty is peanuts when compared to a FTF penalty, but I sometimes question whether a particular commentator understands the difference since they seem to treat all penalties as the same.  

Whatever the case, if a taxpayer owes $10K and can't make the Sep 30 deadline but could be ready by Oct 31, they pay a $500 FTF penalty vs $2,500. And so on, with the penalty increasing by $500 with each succeeding month until the 5th month.  (I'm not taking into account the interest and the relatively tiny FTP penalty, since they remain the same under any scenario of filing and payment)  As you said, Lion, this is huge. Especially at this late date. 

[Lee B]

I don't have any clients effected by this relief. However, September 30th seems to be a date selected by the IRS for determining

who gets the automatic penalty refunds. I haven't seen any guidance for what happens for post September 30th filings?

[jasdlm]

I think I'm being dense.  Does the 990 exemption only apply to 990 PF and 990 T?  This is how I'm reading the information.  I have two clients who fell behind (board disorganization during the pandemic), but straight 990s are due (and have now been completed).

Thanks for your  thoughts!