News, Articles & Resources

The Internal Revenue Code (Code) imposes various penalties on taxpayers for failure to comply with certain return-filing and taxpaying obligations, including the following:

• Section 6651(a)(1) of the Code generally imposes an addition to tax for a failure to file (on or before the date prescribed) a tax return that is required under the authority of subchapter A of chapter 61 (other than part III regarding information returns) of the Code, including certain income tax returns.
• Section 6038 of the Code generally imposes a penalty for the failure of certain United States persons to furnish (on or before the date prescribed) certain information with respect to a controlled foreign corporation or a controlled foreign partnership that the person owns.
• Section 6038A(d) of the Code imposes a penalty on a “25 percent foreign owned” domestic corporation or wholly foreign owned domestic disregarded entity for the failure to furnish (on or before the date prescribed) certain information or the failure to maintain certain records.
• Section 6038C(c) of the Code imposes a penalty on a foreign corporation engaged in a U.S. trade or business for the failure to furnish (on or before the date prescribed) certain information or the failure to maintain certain records.
• Section 6039F(c) of the Code imposes a penalty on a United States person for the failure to furnish (on or before the date prescribed) certain information with respect to the receipt of large gifts or bequests from foreign persons.
• Section 6677 of the Code generally imposes a penalty on a United States person for the failure to file (on or before the date prescribed) a notice or return required by section 6048 of the Code with respect to transactions, with, or ownership of, a foreign trust.
• Section 6698(a)(1) of the Code generally imposes a penalty for the failure of any partnership to file (on or before the date prescribed) the return required under section 6031 of the Code. Section 6698(a)(2) generally imposes a penalty for filing a return that fails to show the information required under section 6031 of the Code.
• Section 6699(a)(1) of the Code generally imposes a penalty for the failure of any S corporation (on or before the date prescribed) a return required under section 6037 of the Code. Section 6699(a)(2) of the Code generally imposes a penalty for filing a return that fails to show the information required under section 6037 of the Code.
• Section 6721(a)(2)(A) of the Code generally imposes a penalty for the failure to file an information return on or before the required filing date.

The foregoing penalties do not apply if the taxpayer can show the failure to timely file the return, timely furnish the required information, or timely provide the required notice, as applicable, is due to reasonable cause.  Reasonable cause is determined on a case-by-case basis and is dependent on the facts of each case.

On March 13, 2020, President Biden issued an emergency declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121 et seq., in response to the ongoing Coronavirus Disease 2019 (COVID-19) pandemic (Emergency Declaration).  The Emergency Declaration instructed the Secretary of the Treasury “to provide relief from tax deadlines to Americans who have been adversely affected by the COVID-19 emergency, as appropriate, pursuant to 26 U.S.C. 7508A(a).”  In response, the Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) issued a series of notices and other guidance to provide relief to affected taxpayers.  In particular, Notice 2020-17, 2020-15 I.R.B. 590, postponed the due date for certain Federal income tax payments from April 15, 2020, until July 15, 2020.  Notice 2020-18, 2020-15 I.R.B. 590, superseded Notice 2020-17 and provided expanded relief postponing the due date for filing Federal income tax returns that were originally due on April 15, 2020, to July 15, 2020.  Notice 2021-21, 2021-15 I.R.B. 986, postponed the due date for filing Federal income tax returns in the Form 1040 series and making certain Federal income tax payments that were originally due on April 15, 2021, to May 17, 2021.  However, additions to tax or penalties for failure to timely file returns continued to accrue for taxpayers who did not file by the postponed due dates.

In recently issued Notice 2022-36 (the “Notice”), the IRS has agreed to eliminate certain late filing penalties for taxpayers who failed to file returns on or prior to the above noted postponed filing dates.  Pursuant to the Notice, late filing penalties with respect to the tax returns noted below for the taxable years 2019 and 2020 will not be imposed provided such returns are filed on or before September 30, 2022.  The penalties will automatically be abated, refunded or credited as appropriate without the need for the taxpayer to request the relief.

The penalties and tax returns eligible for the automatic relief are:

• Additions to tax under section 6651(a)(1) for failure to file the following income tax returns:
  • Form 1040, S. Individual Tax Return; Form 1040-C, U.S. Departing Alien Income Tax Return; Form 1040-NR, U.S. Nonresident Alien Income Tax Return, Form 1040-NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents; Form 1040 (PR), Federal Self-Employment Contribution Statement for Residents of Puerto Rico; Form 1040-SR, U.S. Tax Return for Seniors; and Form 1040-SS;
  • Form 1041, S. Income Tax Return for Estates and Trusts; Form 1041-N, U.S. Income Tax Return for Electing Alaska Native Settlement Trusts; and Form 1041-QFT, U.S. Income Tax Return for Qualified Funeral Trusts;
  • Form 1120, 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; and Form 1120-SR, U.S. Income Tax Return for Settlement Funds (Under section 468B);
  • Form 1066, S. Real Estate Mortgage Investment Conduit (REMIC) Income Tax Return; and
  • Form 990-F, Return of Private Foundation or section 4947(a)(1) Trust Treated as Private Foundation; and Form 990-T, Exempt Organization Business Income Tax Return (and Proxy Tax Under section 6033(e)).
• Certain penalties under sections 6038, 6038A, 6038C, 6039F and 6677 for failure to timely file the following IIRs:
  • Penalties systematically assessed when a Form 5471, Information Return of U.S. Person With Respect to Certain Foreign Corporations, and/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-filed Form 1120-or Form 1065; and
  • Penalties assessed by the campus assessment program with respect to filings on Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, and Form 3520-A, Annual Information Return of Foreign Trust with a U.S. Owner (under section 6048(b)).
• Penalties under section 6698(a)(1) of the Code for failure to timely file and under section 6698(a)(2) of the Code for failure to show the required information on a Form 1065, S. Return of Partnership Income.
• Penalties under Section 6699(a)(1) of the Code for failure to timely file and under section 6699(a)(2) of the Code for failure to show the required information on a Form 1120-S, S. Income Tax Return for an S corporation.

In addition, the IRS will not impose the penalties under section 6721(a)(2)(A) of the Code for failure to timely file any information return (as defined in section 6724(d)(1) of the Code) that meets the following criteria:

• 2019 returns that were filed on or before August 1, 2020, with an original due date of January 31, 2020; February 28, 2020 (if filed on paper) or March 31, 2020 (if filed electronically); or March 15, 2020; or
• 2020 returns that were filed on or before August 1, 2021, with an original date of January 31, 2021; February 28, 2021 (if filed on paper) or March 31, 2021 (if filed electronically); or March 15, 2021.

The penalty relief provided in the Notice does not apply to the penalty for fraudulent failure to file under section 6651(f) of the Code if the penalty for fraud under 6663 of the Code applies to the late filed return.  The penalty relief also does not apply to any penalties that were involved in an accepted Offer in Compromise as well as any penalty that was settled in a closing agreement under section 7121 of the Code or finally determined in a judicial proceeding.