Penalty relief now available for multiple business tax returns, IRS says

IRS just announced widespread penalty relief for many business and individual taxpayers who may have filed certain returns during the COVID-19 pandemic.

Much of the penalty relief was extended due to an unprecedented backlog IRS experienced while attempting to process returns mailed to the agency in the middle of shutdowns and stay-at-home orders.

IRS personnel often weren’t in the office to process returns and respond to taxpayer correspondence. So even if returns were submitted in a timely manner, they may have been subject to penalties and interest by the time IRS got the chance to review them.

In Notice 2022-36, however, IRS said it will waive various penalties and offer relief for several specific tax returns for tax years 2019 and 2020. Penalties will be automatically waived and credited to taxpayers, and refunds will be issued to those who already paid them.

Returns eligible for penalty relief

The following business returns qualify for this penalty relief:

• Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation
• Form 990-T, Exempt Organization Business Income Tax Return (and Proxy Tax Under Section 6033(e))
• Form 1065, U.S. Return of Partnership Income
• Form 1066, U.S. Real Estate Mortgage Investment Conduit (REMIC) Income Tax Return
• 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-S, U.S. Income Tax Return for an S Corporation, and
• Form 1120-SF, U.S. Income Tax Return for Settlement Funds (Under Section 468B).

In addition, any penalties normally assessed when Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, 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 Form 1065 or 1120, will be waived.

Qualifying returns for tax year 2019 must have been filed on or before Aug. 1, 2020, with original due dates of Jan. 31, 2020; Feb. 28, 2020 (if filed on paper), March 15, 2020; or March 31, 2020 (if filed electronically).

Qualifying returns for tax year 2021 must have been filed on or before Aug. 1, 2021, with original due dates of Jan. 31, 2021; Feb. 28, 2021 (if submitted on paper); March 15, 2021; or March 31, 2021.