On August 24th, 2022 the IRS announced they will be forgiving $1.2 billion in penalties. The details of this relief are in Notice 2022-36. Not all penalties are eligible for forgiveness and not all taxpayers qualify for forgiveness.
Let's take a look at the penalties that qualify, and how to receive forgiveness.
What penalties are the IRS including in the $1.2 billion?
The IRS is including failure to file penalties from tax years 2019 and 2020 in the $1.2 billion they are forgiving. Taxpayers incur failure to file penalties when they do not file their return on time. Individuals filing a 1040 income tax return incur a maximum penalty of 25% of the tax owed when they file late.
Let's say a person owes $10,000 when they file and they have filed 6 months late. Their failure to file penalty will be $2,500. Interest accrues on that penalty and other penalties are also assessed.
What IRS penalties are not included in the $1.2 billion of forgiveness?
Failure to file is not the only penalty that a taxpayer may face. Some of the penalties that are not covered by this notice are:
The failure to pay and failure to deposit penalties are still eligible for First Time Abatement, if you qualify. The IRS may forgive the other penalties under reasonable cause.
When the IRS forgives these penalties they waive, refund, or credit them to your account.
Which failure to file penalties qualify for the $1.2 billion of forgiveness?
The IRS will automatically waive, refund, or credit failure to file penalties for 2019 and 2020. The only caveat is that you file your return on or before September 30, 2022. The failure to file penalties that qualify are for forms:
While this is significant the IRS is also waiving failure to file penalties for the following forms:
5471 - Information Return of US Person with Certain Foreign Corporations
3520 - Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts
Failure to file and show required information for Form 1065 and 1120S
There is certain criteria that the returns above must meet to qualify for the forgiveness. The IRS spells these details out in Notice 2022-36.
The IRS will also forgive, refund, or credit failure to file penalties for information returns such as W-2s and almost all Forms 1099. But only if taxpayers filed them by a certain date.
2019 returns filed on or before August 1, 2020
2020 returns filed on or before Auguest 1, 2021
How do I request my penalty forgiveness?
Taxpayers that meet the qualifications to have their penalties forgiven under this notice are not required to do anything. The IRS will automatcially waive these penalties. For taxpayers who have not paid the penalty it will be waived. Taxpayers that have paid the penalty will be sent a refund if they do not have a current balance. For those that have a balance the amount of penalty waived will be credited to their current balance.
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When you are facing questions regarding your personal or business taxes, working with a professional makes all the difference. At Bowens Tax Solutions, we serve our Louisville-area neighbors by providing the tax services and knowledge needed to succeed. We are here to assist you with your tax issues and preventative care. Visit our website at www.bowenstaxsolutions.com for more information..
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