In Notice 2022-36[1] the IRS has announced broad relief from certain penalties for taxpayers filing specified tax and information returns for taxable years 2019 and 2020.

Justification for Relief

Why is the IRS taking this action currently? While the Notice discussed COVID-19 related issues in general, the background concludes with what is likely the most significant factor driving this relief—the fact that, due to the backlog of unprocessed documents and returns, this is being done to hopefully clear out a lot of issues the IRS otherwise has to deal with before the agency could get back to pre-pandemic processing and response times:

The COVID-19 pandemic has also had an unprecedented effect on the IRS’s personnel and operations. The agency was called upon to support emergency relief for taxpayers, such as distributing economic impact payments, while sustaining its regular operations in a pandemic environment with limited resources, where employees were sometimes unable to be physically present to process tax returns and correspondence. In response to these challenges, the IRS has been working aggressively to process backlogged returns and taxpayer correspondence to return to normal operations for the 2023 filing season. The Treasury Department and the IRS have determined that the penalty relief described in this notice will allow the IRS to focus its resources more effectively, as well as provide relief to taxpayers affected by the COVID-19 pandemic.[2]

A footnote references the additional work given the IRS to process the three rounds of economic impact payments:

The IRS, in coordination with the Bureau of the Fiscal Service, issued more than 476.1 million payments through three rounds of economic impact payments, totaling more than $814.4 billion during 2020 and 2021. IRS Data Book, 2021, Publication 55-B.[3]

Relief Granted-Waiver and Abatement of Penalties

The relief applies from penalties specified in the Notice for the specified tax returns for taxable years 2019 and 2020 that are filed before September 30, 2022. The penalties “will be automatically abated, refunded, or credited, as appropriate without any need for taxpayers to request this relief.”[4]

Failure to File Penalty Under IRC §6651(a)(1)

The additions to tax for failure to file under IRC §6651(a)(1) are abated and waived for the following income tax returns:

Form 1040, U.S. Individual Income Tax Return;
Form 1040-C, U.S. Departing Alien Income Tax Return;
Form 1040-NR, U.S. Nonresident Alien Income Tax Return;
Form 1040-NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents;
Form 1040 (PR), Federal Self-Employment Contribution Statement for Residents of Puerto Rico;
Form 1040-SR, U.S. Tax Return for Seniors;
Form 1040-SS, U.S. Self-Employment Tax Return (Including the Additional Child Tax Credit for Bona Fide Residents of Puerto Rico);
Form 1041, U.S. Income Tax Return for Estates and Trusts;
Form 1041-N, U.S. Income Tax Return for Electing Alaska Native Settlement Trusts;
Form 1041-QFT, U.S. Income Tax Return for Qualified Funeral Trusts;
Form 1041, U.S. Income Tax Return for Estates and Trusts;
Form 1041-N, U.S. Income Tax Return for Electing Alaska Native Settlement Trusts;
Form 1041-QFT, U.S. Income Tax Return for Qualified Funeral Trusts;
Form 1120, U.S. Corporation Income Tax Return;
Form 1120-C, U.S. Income Tax Return for Cooperative Associations;
Form 1120-F, U.S. Income Tax Return of a Foreign Corporation;
Form 1120-FSC, U.S. Income Tax Return of a Foreign Sales Corporation;
Form 1120-H, U.S. Income Tax Return for Homeowners Associations;
Form 1120-L, U.S. Life Insurance Company Income Tax Return;
Form 1120-ND, Return for Nuclear Decommissioning Funds and Certain Related Persons;
Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return;
Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations;
Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts;
Form 1120-RIC, U.S. Income Tax Return for Regulated Investment Companies;
Form 1120-SF, U.S. Income Tax Return for Settlement Funds (Under Section 468B);
Form 1066, U.S. Real Estate Mortgage Investment Conduit (REMIC) Income Tax Return;
Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation; and
Form 990-T, Exempt Organization Business Income Tax Return (and Proxy Tax Under Section 6033(e)).[5]

Certain Penalties Under IRC §§6038, 6038A, 6038C, 6039F and 6677 for Failure to File Certain International Information Returns

The following penalties for failure to timely file the following international information returns will be abated and waived by the IRS:

Penalties systematically assessed when a Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations, and/or Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business, is attached to a late-filed Form 1120 or Form 1065; and
Penalties assessed by the campus assessment program with respect to filings on Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, and on Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner (Under section 6048(b)).[6]

Partnership and S Corporation Late Filing

Also waived and abated are:

Penalties under section 6698(a)(1) for failure to timely file and under section 6698(a)(2) for failure to show the required information on a Form 1065, U.S. Return of Partnership Income and
Penalties under section 6699(a)(1) for failure to timely file and under section 6699(a)(2) for failure to show the required information on a Form 1120-S, U.S. Income Tax Return for an S corporation.[7]

Information Returns

The IRS also will not impose penalties for failure to timely file an information return under IRC §6721(a)(2)(A) that meet the following criteria:

2019 returns that were filed on or before August 1, 2020, with an original due date of January 31, 2020; February 28, 2020 (if filed on paper) or March 31, 2020 (if filed electronically); or March 15, 2020; or
2020 returns that were filed on or before August 1, 2021, with an original due date of January 31, 2021; February 28, 2021 (if filed on paper) or March 31, 2021 (if filed electronically); or March 15, 2021.[8]

Penalties for Which Relief is Not Granted

The IRS provides the following information regarding penalties that won’t be waived or abated under this Notice:

The penalty relief described in this notice does not apply to any penalties that are not specifically listed in the grant of relief under section 3.A of this notice. In addition, the penalty relief described in section 3.A of this notice is not available with respect to any return to which the penalty for fraudulent failure to file under section 6651(f) or the penalty for fraud under section 6663 applies. The penalty relief described in this notice also does not apply to any penalties in an accepted offer in compromise under section 7122 because acceptance of the offer conclusively settled all of the liabilities in the offer under § 301.7122-1(e)(5) of the Procedure and Administration Regulations. The penalty relief described in this notice does not apply to any penalty settled in a closing agreement under section 7121 or finally determined in a judicial proceeding.[9]

[1] Notice 2022-36, August 24, 2022, https://www.irs.gov/pub/irs-drop/n-22-36.pdf (retrieved August 24, 2022)

[2] Notice 2022-36, Section 2, August 24, 2022

[3] Notice 2022-36, Section 2, August 24, 2022

[4] Notice 2022-36, Section 3.A, August 24, 2022

[5] Notice 2022-36, Section 3.A(1), August 24, 2022

[6] Notice 2022-36, Section 3.A(2), August 24, 2022

[7] Notice 2022-36, Section 3.A(3), August 24, 2022

[8] Notice 2022-36, Section 3.A, August 24, 2022

[9] Notice 2022-36, Section 3.B, August 24, 2022