The IRS announced in Notice 2022-36 that it will waive late-filing penalties for certain taxpayers who late-file returns for the 2019 and 2020 tax years. Eligible tax returns include individual, corporate, estates and trusts, and more. The waiver applies to the late filing penalty of 5% of your unpaid balance per month, capped at 25%. Late payment penalties of 0.5% per month may still be assessed. It also waives late-filing penalties assessed for taxpayers with certain international tax items such as Forms 5471, Forms 5472, Forms 3520, and Forms 3520-A. The relevant penalties will be waived or, if already paid, refunded. However, the relief may not apply if the taxpayer has fraud or criminal exposure.
It is estimated that more than $1.2 billion in late penalties will be waived or refunded. This is huge news for taxpayers who have already late filed and even some taxpayers who have not yet filed their 2019 and 2020 returns. Those who have not filed may still be eligible for penalty relief on certain returns if they file on or before September 30, 2022.
This creates some questions, especially procedurally, but will be a benefit for many taxpayers. When evaluating how to enter compliance on international reporting this will be an important consideration. Now, taxpayers will have to consider the risks and rewards of streamlined, reasonable cause, late reporting, as well as the benefit of some tax relief in 2019 and 2020. It is very important to choose a tax professional that understands all these options and how they can best be utilized.
The deadline is fast approaching, so immediate action is required if you have not yet filed. Contact us if you have late filed returns, or have already been penalized, and need assistance.