updated 11:58 PM CET, Nov 29, 2022

IRS announces surprise gift of penalty relief for late filers of tax year 2019, 2020 returns

In a surprise announcement that immediately triggered a burst of mostly positive reactions on social media, the U.S. Internal Revenue Service on Wednesday announced that it would be providing "broad-based penalty relief to most people and businesses who file certain 2019 and 2020 [tax] returns late," in an effort to "help struggling taxpayers affected by the Covid-19 pandemic". 

In a statement, it said that it was also taking "an additional step to help those who paid these penalties already," by issuing more than US$1.2 billion in refunds or credits to nearly 1.6 million taxpayers, in most cases doing so by the end of September. 

In addition to seeking to give long-suffering, pandemic-impacted U.S. taxpayers a break, the IRS admitted that its action was also designed "to allow the IRS to focus its resources on processing backlogged tax returns and taxpayer correspondence, to help return to normal operations for the 2023 filing season." 

An IRS spokesperson said the relief would be made available to qualifying expatriate taxpayers as well as those filing from the U.S.

In order to qualify for the relief, IRS officials stress, taxpayers need to file their returns on or before Sept. 30.

As this and other publications reported earlier this year, the most recent U.S. tax reporting season was characterized by a significant and unprecedented backlog in the number of tax returns processed. The situation was blamed on a variety of factors, including cutbacks in the IRS's budget; already-existing tax return backlogs from previous years; IRS staff shortages; the effects of Covid; and too many people filing too many paper returns, instead of filing electronically. 

In the statement, IRS Commissioner Chuck Rettig said that the IRS had "worked hard" throughout the pandemic "to support the nation and provide relief to people in many different ways.

"The penalty relief issued today is yet another way the agency is supporting people during this unprecedented time," he added.

"This penalty relief will be automatic for people or businesses who qualify; there's no need to call."

In other words, one tax adviser noted, the IRS is apparently not requiring any "demonstration of reasonable cause, or an explanation" of the reason that the filing is or was late, as the relevant penalties "will automatically be waived".

National Taxpayer Advocate:
Additional background

Erin M. Collins NTAAlmost as soon as the IRS announced its penalty relief package – in the official form of Notice 2022-36 – the National Taxpayer Advocate, Erin M. Collins (pictured left) released her own analysis of it, which provided additional insights and advice.

The NTA is a Treasury secretary-appointed ombudsman who is employed by the IRS to represent the interests of U.S. taxpayers from their position on the inside of the organization.  

Many taxpayers taxpayers struggled to file their 2019 and 2020 returns on time, for example, Collins noted, owing to numerous obstacles that arose during the height of the pandemic, including "office closures throughout the country; difficulty [in] gathering or providing documents for accurate filings; [being] incapacitated by sickness, or [having to rely] on tax professionals who faced challenges in shifting to remote [working arrangements].

"At the same time, the IRS was virtually unreachable by phone, while a backlog of unprocessed paper returns and correspondence that started in 2020 continued to grow.

"Many taxpayers, through no fault of their own, and sometimes even when they timely filed, were subject to late-filing penalties."

To read and download NTA Collins's analysis, which is written in the format of one of her regular blogs, click here.