Taxes: IRS Will Refund $1.2B to Late Filers Who Struggled During Pandemic — Who Qualifies?

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In a move designed to help struggling taxpayers affected by the COVID-19 pandemic, the IRS will provide penalty relief to individuals and businesses who filed certain 2019 and 2020 returns late. It also will provide more than $1.2 billion in refunds and credits to those who already paid the penalties.

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The announcement was made Aug. 24 on the IRS website in the form of Notice 2022-36, found here. The agency said many of the refund payments will be completed by the end of September.

The decision will also benefit the IRS itself by allowing the agency to focus its resources on processing backlogged tax returns and taxpayer correspondence, with the aim of returning to normal operations for the 2023 tax filing season.

The relief applies to taxpayers who faced a penalty for failing to file, which is usually assessed at a rate of 5% per month; and up to 25% of the unpaid tax when a federal income tax return is filed late. Forms in both the 1040 and 1120 series apply, as well as others listed in Notice 2022-36. 

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To qualify for the relief, eligible income tax returns must be filed on or before Sept. 30.

Relief will also be applied to certain banks, employers, businesses and filers of international information returns.

Penalty relief is automatic, meaning eligible taxpayers don’t need to apply for it. Penalties that have already been assessed will be abated, while those that have been paid will be refunded to taxpayers. Nearly 1.6 million taxpayers who already paid the penalty will receive refunds, the IRS said.

In some cases, however, penalty relief will not available. These cases include fraudulent returns; penalties that were part of an accepted offer in compromise or closing agreement; and penalties determined by a court.

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Also, relief is limited to penalties that the notice specifically states are eligible for relief. Other penalties, such as the failure to pay a penalty, are not eligible. For ineligible penalties, taxpayers can use existing penalty relief procedures, such as applying for relief under the reasonable cause criteria or the First Time Abate program.

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.
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