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Wednesday October 4, 2023
COVID Tax Penalty Relief Deadline
The relief has two benefits. First, individuals and businesses that failed to file may now file by the September 30, 2022 deadline and receive penalty relief. Second, the IRS will be able to focus on clearing its backlog of paper tax returns and get ready for the filing season next year.
IRS Commissioner Chuck Rettig stated, "We thought carefully about the type of penalties, the period covered and the duration before granting this penalty relief. We understand the concerns being raised by the tax community and others about the September 30 penalty relief deadline."
The IRS had multiple staff discussions about the right deadline and the time needed to prepare the IRS staff and computers for the filing season in 2023. Rettig continued, "Given the planning for the upcoming tax season and ongoing work on the inventory of tax returns filed earlier this year, this penalty relief deadline of September 30 strikes a balance." In his view, the selected date will enable the IRS to focus their efforts during the balance of the year on preparations for the 2023 filing season.
The failure–to–file penalty can be 5% per month up to 25% of the unpaid tax. If taxpayers have gotten behind and failed to file, it is important to file by September 30, 2022. If a taxpayer has not filed by that date but is able to file later this year, there will be a partial relief. The failure-to-file penalties will start on October 1, 2022.
This penalty relief applies only to failure-to-file and does not apply to the failure-to-pay penalty. The failure-to-pay penalty is one half of 1% per month. The interest rate is currently 5% annually, but it will increase to 6% on October 1, 2022.
The favorable news is that the failure-to-file penalty relief is automatic. Taxpayers who have filed a late return and paid a penalty will receive refunds. The IRS will attempt to process the penalty refunds by the end of September.
There are three exceptions to the penalty relief. If there was a fraudulent return, a taxpayer and the IRS entered into an offer in compromise or the penalties were determined by a court, they will continue to be applicable.
Editor's Note: With the dramatic impact of the COVID-19 lockdowns, many taxpayers were not able to meet with their tax preparers and receive filing assistance. As a result, there are a significant number of taxpayers who have not yet filed a 2019 or 2020 tax return. This penalty relief announced by the IRS will be welcome. However, these taxpayers should still move forward promptly and file their tax returns.