Did the IRS hit you with a penalty related to your 2019 and/or 2020 tax returns? If so, there is some good news that may apply to you.
You don’t need us to tell you: The Covid-19 pandemic profoundly impacted all aspects of life and continues to be felt in many areas today.
For taxpayers, filing their returns on time was no exception, especially during the height of the pandemic. Between sickness affecting both taxpayers and preparers, confusion about shifting tax statuses, and the challenges of remote work — not to mention IRS backlogs, office closures, and customer service issues — Covid presented unique hurdles when it came to the timely filing of 2019 and 2020 tax returns.
Even some of those who did manage to file on time ended up subject to late-filing penalties, through no fault of their own!
To help address these issues for taxpayers struggling in the wake of the pandemic, the IRS recently issued Notice 2022-36. This notice provides much-needed relief for certain taxpayers from certain penalties with respect to tax returns for the taxable years 2019 and 2020.
To learn more about the broad-based penalty relief the IRS has provided for certain taxpayers impacted by Covid-19, continue reading below.
The new penalty relief measure applies to both individuals and businesses who faced penalties and will come as welcome news for many. IRS late-filing or failure-to-file penalties are not insignificant, and they can add up. In fact, under IRC § 6651(a)(1), the IRS can calculate such penalties at 5% of the total tax due for each month or partial month the return is late, up to a maximum of 25% of the total. For example, let’s say you owe $10,000. The IRS may apply a penalty of $500 per month, which can accrue up to $2,500 on top of your existing debt.
This notice, however, contains a waiver and abatement of some of these penalties. Moreover, the IRS is also supplying further relief to banks, employers, and other businesses that file various information returns.
It gets even better: Most taxpayers do not have to take any action to benefit from this relief. The IRS will automatically deliver most of the $1.2 billion in refunds to eligible taxpayers next month — no need to apply.
Simply put, if you were subject to a late-filing penalty for taxable years 2019 and/or 2020, or if your business was penalized during the corresponding fiscal years, you may be eligible for this provision.
The relief applies to the following types of returns:
There are a couple of important points worth noting. First, if you owe a tax return for 2019 or 2020 and you still haven’t filed it, you must do so before September 30th, 2022, to receive this relief. As long as you file your 2019 and/or 2020 return before that deadline, and provided you are eligible for the relief, you will not be liable for any late-filing penalties for those tax years.
Additionally, filers of information returns other than IIRs for the tax year 2019 filed on or before August 3rd, 2020, will have late-filing penalties abated. However, penalties on information returns that the IRS has assessed for reasons other than lateness will not be waived. For the tax year 2020, the same relief applies for returns filed on or before August 2nd, 2021.
Finally, it is also worth mentioning that there are some exceptions.
The penalty relief described in the notice does not apply to any penalties that are not specifically listed in the notice under section 3.A. Furthermore, you can not expect relief for any penalties for fraud under section 6651(f) or section 6663.
More exceptions include:
As mentioned above, the IRS will apply this relief automatically. In fact, they have already begun to do so. Beginning on August 25th, the IRS began providing the relief to eligible taxpayers. They will continue to do so for any qualifying returns filed before September 30th, 2022 — to reiterate, that means if you have not filed for 2019 and/or 2020, you have until that date to do so if you wish to receive penalty relief.
Furthermore, if the IRS has already assessed a penalty, they will abate it, even if they have already previously denied your application for an abatement. If you have already paid a penalty, like 1.6 million other Americans, the IRS will issue you a credit or refund. Generally, they will send this as a paper check, but if you owe other federal debts, it may be applied to those debts first. You will then receive the remainder as a refund, most likely by the end of September.
Two potential issues to note:
The best and fastest way to find information about your penalty relief is to create an online account with IRS.gov and check your tax transcripts digitally. It may take some time, perhaps up to three months, for the IRS to send out all notices. Therefore, if you have questions, you may want to wait until after November 30th, 2022, before contacting the IRS directly. When the time comes, you can find assistance at (800) 829-1040.
This penalty relief measure is unique in terms of how broad it is, not to mention how favorable it is to the taxpayer. That’s good news for many Americans, but keep in mind that a program this expansive is sure to encounter some bumps along the way.
Just remember — in most situations, no action is required on your part to benefit from this relief. As long as you are eligible, have filed your 2019 and/or 2020 returns, and have updated the IRS on your current address, the best course of action in the near term is simply to be patient.
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Above & Beyond
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Jeff Coyle, CPA, Partner of Rosenberg Chesnov, has been with the firm since 2015. He joined the firm after 20 years of business and accounting experience where he learned the value of accurate reporting, using financial information as a basis for good business decisions and the importance of accounting for management.
He is a diligent financial professional, able to manage the details and turn them into relevant business leading information. He has a strong financial background in construction, technology, consulting services and risk management. He also knows what it takes to create organizations having built teams, grown companies and designed processes for financial analysis and reporting.
His business experience includes:
Creating and preparing financial reporting, budgeting and forecasting.
Planning and preparation of GAAP and other basis financial statements.
Providing insight on financial results and providing advice based on those results.
Jeff also has a long history of helping individuals manage their taxes and plan their finances including:
Income tax planning and strategy.
Filing quarterly and annual taxes.
General financial and planning advice.
Prior to joining the firm in 2015, Jeff was in the private sector where he held senior financial and management positions including Controller and Chief Financial Officer. He has experience across industries, including construction, technology and professional services which gives him a deep understanding of business.
Jeff graduated from Montclair State University, he is a CPA and member of the American Institute of Certified Public Accountants, New York State Society of Certified Public Accountants and New Jersey State Society of Public Accountants.
Jody H. Chesnov, CPA, Managing Partner of Rosenberg Chesnov, has been with the firm since 2004. After a career of public accounting and general management, Jody knows the value of good financials. Clarity, decision making, and strategy all start with the facts – Jody has been revealing the facts and turning them into good business results for more than three decades.
He takes a pragmatic approach to accounting, finance and business. His work has supported many companies on their path to growth, including helping them find investors, manage scaling and overcome hurdles. His experience and passion for business reach beyond accounting and he helps businesses focus on what the numbers mean organizationally, operationally and financially.
He has a particular expertise in early-stage growth companies. His strengths lie in cutting through the noise to come up with useful, out of the box, solutions that support clients in building their businesses and realizing their larger visions.
Prior to joining the firm in 2004, Jody was in the private sector where he held senior financial and management positions including General Manager, Chief Financial Officer and Controller. He has experience across industries, which gives him a deep understanding of business.
Jody graduated with a BBA in Accounting from Baruch College, he is a CPA and member of the American Institute of Certified Public Accountants and New York State Society of Certified Public Accountants.
In addition to delivering above and beyond accounting results, Jody is a member of the NYSCPA’s Emerging Tech Entrepreneurial Committee (ETEC), Private Equity and Venture Capital Committee and Family Office Committee.
He is an angel investor through the Westchester Angels, and has served as an advisor for many startup companies and as a mentor through the Founders Institute.
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