The Internal Revenue Code imposes a penalty for the failure to file returns on a timely basis. In order to avoid the late filing penalty, the taxpayer must prove that the failure to timely file a return was due to reasonable cause. Although it may sound simple, it is actually quite difficult to get the IRS to waive late filing penalties due to reasonable cause.

Although the tax filing deadlines for many 2019 and 2020 returns were extended due to the COVID pandemic, many taxpayers have not yet filed required returns for these years.  Additionally, as a result of the effect of the pandemic on the IRS’s operations, many filed returns were not timely processed by the IRS. The IRS has been working aggressively to deal with the massive backlog of filed returns and has processed all returns received prior to January 2022 if there were no errors on the return.

The Treasury Department and the IRS have determined that granting taxpayers relief from the late filing penalty will not only provide relief to taxpayers affected by the pandemic, but it will also allow the IRS to focus its resources more effectively. The IRS will not impose the late filing penalties listed below for 2019 and 2020 returns so long as the returns are filed no later than September 30, 2022.

What if you have already filed your 2019 and 2020 returns, and paid a late filing penalty because the returns were late? The good news for you is that the IRS will automatically refund you the late filing penalty paid. The IRS anticipates issuing refunds for the late filed penalties paid by the end of September so long as it is a penalty to which the waiver applies. Nearly 1.6 million taxpayers will be receiving refunds.

Penalties to which the relief applies to:

1. Individual Income Tax Returns (1040 series)
2. Estate and Trust Income Tax Returns (1041 series)
3. Corporate Income Tax Returns (1120 series)
4. REMIC Income Tax Returns (1066 series)
5. Private Foundation and Exempt Organization Returns (990-PF and 990-T)
6. Information Returns (1065, 1120-S, 5471, 5472)
7. Foreign Gift Returns (3520 and 3520-A)

The penalty waiver relief does not apply in the following circumstances:

1. The penalty is not specifically listed above.
2. The failure to file the return is fraudulent.
3. The return is fraudulent.
4. The penalty was part of an accepted offer in compromise.
5. The penalty was settled in a closing agreement.
6. The penalty was determined in a judicial proceeding.