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Penalty relief deadline fast approaches for 2019, 2020 tax returns

The deadline for late-filing penalty relief for 2019 and 2020 tax returns is Sept. 30, a date the IRS reaffirmed Friday.

“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,” IRS Commissioner Chuck Rettig said in a news release. “Given 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. It is critical to us to not only provide important relief to those affected by the pandemic, but this deadline also allows adequate time to prepare our systems and our workstreams to serve taxpayers and the tax community during the 2023 filing season.”

The IRS unveiled the penalty relief plan on Aug. 24. In an Aug. 30 comment letter, the AICPA applauded the IRS for providing relief but requested a deadline extension to Dec. 31. In a Sept. 8 comment letter, the AICPA requested expansions, modifications, and clarifications, including a call for 2021 tax returns (as well as 2016–2018 tax returns) to get the same relief as 2019 and 2020 returns.

The IRS reiterated Friday that 2021 returns do not qualify for relief.

Relief for the 2019 and 2020 tax years applies to forms in both the Form 1040 and 1120 series, as well as others listed in Notice 2022-36.

The IRS estimates that 1.6 million taxpayers who already paid late-filing penalties related to their 2019 and 2020 returns will automatically receive refunds or credits totaling $1.2 billion.

Although the time for the full penalty relief is running out for businesses and individuals that have not yet filed their 2019 or 2020 returns, those that miss the deadline but file during the first few months after the Sept. 30 cutoff will still qualify for partial penalty relief. For eligible returns filed after the cutoff date,  penalties will start accruing on Oct. 1 instead of the return’s original due date. The IRS noted in the news release that the late-filing penalty accrues based on each month or part of a month that a return is late, so filing sooner will limit any charges that apply.

The late-filing penalty is 5% of the unpaid tax per month, up to 25%.

While the IRS is providing relief for failure to file in a timely fashion, the failure-to-pay penalty remains unchanged for all years — 0.5% of the unpaid tax per month based on the return’s original due date. Interest, compounded daily, also applies, and the 5% interest rate is set to increase to 6% on Oct. 1.

— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at [email protected]

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