IRS penalty relief coming next month


To provide further relief to taxpayers and the IRS alike, penalty relief will begin taking effect next month. The IRS has been massively underwater, especially in paper processing, since the pandemic.

Taxpayers are waiting over a year now in most cases for responses and resolution on paper filed documents. The IRS recently announced automatic relief for many individual and corporate filers who filed late during the pandemic. The relief will apply to both 2019 and 2020 individual, corporate, and some trust tax returns.

Normally the IRS charges a 5% per month late filing penalty and separate underpayment penalties. The relief will not apply to the .5% underpayment penalty for taxpayers who still have not paid the taxes related to these years.

But the IRS will begin processing automatic relief of the 5% late filing penalties. Taxpayers must file their returns by Sept. 30 to be eligible for automatic relief.

The relief efforts are expected to cost approximately $1.2 billion. For taxpayers who have already paid the penalties, the IRS will begin processing refunds next month. The relief is a welcome effort to unburden the IRS and put funds back in taxpayers’ hands. The IRS has struggled to recover from the massive workload created by last-minute pandemic-driven tax law changes.

Tax professionals especially have faced massive frustrations, finding that even the tax practitioners’ hotline at the IRS is often so overburdened you can’t get through. In addition, our clients have experienced receiving a myriad of notices that don’t always make sense.

Often, notices are coming from one department while our clients’ documents sit unprocessed with another department. This relief is an attempt to wipe out the IRS burden of following up on these late filing fees as well as cut out the workload associated with reviewing abatement requests and response notices that all require paper processing.

With little time left before the 2023 filing season, it remains to be seen if enough is being done to improve the cumbersome backlog. In some cases, taxpayers are still waiting on responses related to 2020 returns and moving forward with future filings without clear answers from the IRS as to the status of their account. 

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