IRS Notice 2022-41: Penalty Relief Details Explained
Understand the framework of IRS Notice 2022-41, which automatically waived certain late-filing penalties for specific 2019 and 2020 tax returns.
In response to the significant processing backlogs and challenges faced by taxpayers during the COVID-19 pandemic, the Internal Revenue Service issued broad penalty relief through Notice 2022-36. This notice assisted individuals and businesses who were late in filing certain tax and information returns for the 2019 and 2020 tax years. The relief was automatic for a wide range of common filings, providing a reprieve from specific penalties without requiring taxpayers to submit a request.
Scope of the Penalty Relief
The relief under Notice 2022-36 targeted the failure-to-file penalty, assessed when a taxpayer does not file a return by its due date. This penalty is 5% of the unpaid tax for each month a return is late, capped at 25% of the total tax owed.
The relief also extended to penalties for the late filing of certain information returns, such as the Form 1099 series, and certain partnership and S corporation returns.
The relief did not apply to the failure-to-pay penalty. This penalty of 0.5% per month on unpaid tax continued to accrue even if the failure-to-file penalty was abated.
Eligibility for Automatic Relief
To qualify for automatic penalty abatement, all eligible 2019 and 2020 tax returns had to be filed with the IRS by September 30, 2022. The relief was applied automatically, even for those who had already filed and been assessed a penalty.
The scope of eligible returns was extensive, covering many common forms. Eligible returns included:
- The Form 1040 series for individuals
- The Form 1120 series for corporations
- Form 1065 for partnerships
- Form 1120-S for S corporations
- Form 1041 for estates and trusts
- Form 990-T and Form 990-PF for certain tax-exempt organizations
- The Form 1099 series of information returns
Receiving Refunds for Penalties Already Paid
The relief was automatic, extending to taxpayers who had already paid failure-to-file penalties for eligible returns. These taxpayers did not need to contact the IRS or file any forms, as the agency systemically identified qualifying accounts to process the relief.
When a paid penalty was abated, the IRS issued a refund or credit. A refund check was mailed to the taxpayer’s last known address if no other tax liabilities were outstanding. If a balance was due, the abated amount was applied as a credit to that liability.
The IRS stated that nearly all refunds and credits would be issued by the end of September 2022. Approximately 1.6 million taxpayers received refunds or credits totaling over $1.2 billion.
Exclusions and Special Cases
The relief had specific exclusions. It did not apply if a penalty was part of a court determination, a formal closing agreement, or an accepted offer in compromise. Relief was also unavailable for any return where a fraudulent failure to file or fraud penalty was asserted.
The notice clarified the treatment of certain International Information Returns (IIRs). Relief was available for Form 5471, Form 5472, Form 3520, and Form 3520-A, if they were attached to an income tax return filed by the deadline.
Other common IIRs, such as Form 8938 and Form 8865, were not eligible for the penalty waiver. Taxpayers with late-filing issues for these forms had to use other procedures, like requesting abatement for reasonable cause.