Background
There is generally a tax imposed for failure to file a tax return. On 13 March 2020, the President issued an emergency declaration in response to the COVID-19 pandemic. In response to the ongoing effect COVID-19 has had on the IRS's personnel and operations, the IRS issued Notice 2022-36, the latest taxpayer-friendly grant of relief. Notice 2022-36 provides relief for certain taxpayers from certain failure to file penalties and certain international information return (IIR) penalties for the taxable years 2019 and 2020 if the returns are filed on or before 30 September 2022. The penalties will be waived or, to the extent previously assessed, abated, refunded, or credited.
Grant of Relief
If the taxpayer meets the conditions set forth in the notice, the IRS will not impose penalties for failure to file various versions of the following Forms (for a complete list of which Forms are covered please see Notice 2022-36):
- Form 1040 (US Individual Income Tax Return)
- Form 1041 (US Income Tax Return for Estates and Trusts)
- Form 1120 (US Income Tax Return of a Corporation)
- Form 1066 (US Real Estate Mortgage Investment Conduit Income Tax Return)
- Form 990-PF (Return of a Private Foundation)
- Form 990-T (Exempt Organization Business Income Tax Return)
- Form 5471 (Information Return of US Persons With Respect to Certain Foreign Corporations)
- Form 5472 (Information Return of 25% Foreign-Owned US Corporation or Foreign Corporation Engaged in US Trade or Business)
- Form 3520 (Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts)
- Form 3520-A (Annual Return of Foreign Trust With a US Owner)
- Form 1065 (US Return of Partnership Income)
- Form 1120-S (US Income Tax Return for an S Corporation)
Form 3520 has come under scrutiny by the IRS and a failure to file such form results in a 35% penalty on the gross value of the trust or the gross value of the property transferred from the trust. Additionally, the IRS has rejected reasonable cause defenses for failures to file Form 3520. Notice 2022-36 provides a small window of time to resolve late-filed Forms 3520 for 2019 and 2020. This Notice also provides relief from failure to file Form 5471 and Form 5472, which are burdensome IIRs relating to ownership of controlled foreign corporations as well as foreign owned domestic corporations. Forms 1040, 1120, and 1065 are the federal income tax returns for individuals, corporations, and partnerships, respectively, and are typically relevant for most US taxpayers.
Conclusion
Notice 2022-36 provides taxpayers with a short window of time to file returns and abate any failure to file penalties associated with them for the taxable years 2019 and 2020. Please reach out if you have any further questions, or think this Notice can help you.
This Client alert was prepared by Mathew Slootsky (Miami).
