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IRS Provides Penalty Relief for Certain 2019 and 2020 Returns - Must File by September 30

IRS Provides Penalty Relief for Certain 2019 and 2020 Returns - Must File by September 30
Ines Zemelman, EA
05 September 2022

The IRS has provided new penalty relief for taxpayers who filed 2019 and 2020 returns late. Additionally, the IRS expects 1.6 million taxpayers to receive more than $1.2 billion in credits or refunds. 

Relief Automatic if Filed By September 30th, 2022 No Need to Call or Make Special Request

The penalties listed in this article will be automatically abated, refunded, or credited, as appropriate without any need for taxpayers to request this relief, so long as they are filed by September 30, 2022.

The penalty relief will apply specifically to the draconian failure to file penalty. This relief concerns a wide gamut of individuals, business owners, and trust owners. For full list of forms, read below.

What is the Failure to File Penalty and How Does it Differ From Regular IRS Interest On Unpaid Tax?

Unlike interest, this penalty is typically assessed as a percentage of the unpaid tax at 5% per month, up to 25%. In contrast, the interest penalty is charged at a nominal rate (even though interest rates are climbing). For example - even at a 5% interest rate, that means the IRS charges interest at .(05 / 12) per month. With an unpaid tax amount of $10,000, that would equal to $41.67 per month (.05/12) * 10000. Contrast that with the failure to file penalty, a one month late filing penalty would lead to a penalty of $500 (.05 * 10000). A 5 month delay in filing would lead to a penalty of $2500 (.05 * 10000 * 5; maximum of 25%).

At TFX, we always recommend to file an extension to avoid the dreaded failure to file penalty. Reminder, we make this process easy - you can request an extension directly in your portal, we will take care of everything for you.

Critical Relief for Commonly Filed Expat-Specific Forms 5471, 3520-A/3520

Nestled in the main announcement which you will see on the news, the relief also concerns late filed Forms 5471 and 3520/3520-A for 2019, 2020, so long as they are filed before September 30, 2022.

As a reminder, these forms are commonly filed for expats who own foreign corporations and have foreign trusts. This is important because these forms have even higher penalties, often $10,000. 

Full List of IRS Forms to Receive Relief

The IRS will not impose the penalties with respect to the specified tax returns for taxable years 2019 and 2020 that are filed on or before September 30, 2022

 The full list of forms is below

  • Form 1040

    1040
    1040-C
    1040-NR
    1040-PR
    1040-SR
    1040-SS

  • Form 1041

    1041
    1041-QFT
    1041-N

  • Form 5471

    5471
    5472

  • Form 3520

    3520
    3520-A
     

  • Form 1065

  • Form 1120

    1120-S
    1120-F
    1120-FSC
    1120-H
    1120-L
    1120-ND
    1120-PC
    1120-REIT
    1120-RIC
    1120-SF

  • Form 1066

  • Form 990-PF

In addition, the IRS will not impose penalties for failure to file any information returns that meet the below conditions:

  • 2019 returns that were filed on or before August 3, 2020, with an original due date of January 31, 2020; February 28, 2020 (if filed on paper) or March 31, 2020 (if filed electronically); or March 15, 2020; or

  • 2020 returns that were filed on or before August 2, 2021, with an original due date of January 31, 2021; February 28, 2021 (if filed on paper) or March 31, 2021 (if filed electronically); or March 15, 2021.

Ines Zemelman, EA
Founder of TFX