IRS further extends deadline to file 2019/2020 tax returns for penalty relief in disaster areas

Tax pros and taxpayers now have more time to file certain 2019 and 2020 returns to get late-filing penalty relief. 

In my recent article, IRS provides automatic relief for late filed 2019 and 2020 returns and penalties paid to be refunded, I described the penalty relief granted to taxpayers for late-filed 2019 and 2020 returns that were filed by September 30, 2022.  

The IRS announced on Wednesday that in areas covered by certain Federal Emergency Management Agency (FEMA) disaster declarations taxpayers may have more time to file their returns to qualify for the penalty relief under Notice 2022-36 for their 2019 and 2020 tax returns. 

Under Notice 2022-36, penalties for late-filing certain tax returns, as well as penalties for not reporting certain required information on the Form 1065 or Form 1120-S, are waived or abated if the relevant return was filed on or before Sept. 30, 2022.

Details on the 2019 and 2020 filing extension for taxpayers in disaster-declared areas

In IR-2022-185, the IRS announced that individuals and households that live or have a business in recently declared FEMA disaster areas have even more time to file these 2019 and 2020 returns to get this penalty relief, as noted below.

Areas with a deadline of November 15, 2022, include:

• Counties in Missouri identified under FEMA’s Major Disaster Declaration 4665. 
• Counties in Kentucky identified under FEMA’s Major Disaster Declaration 4633. 
• The island of St. Croix in the U.S. Virgin Islands. 
• Members of the Tribal Nation of the Salt River Pima Maricopa Indian Community. 

Areas with a deadline of February 15, 2023, include Florida, Puerto Rico, North Carolina,  South Carolina, areas identified under FEMA’s Major Disaster Declaration 4672, and Hinds County, Mississippi. 

The relief provided under Notice 2022-36 applies to the failure-to-file penalty that is typically assessed at a rate of 5% per month, up to 25% of the unpaid tax when a federal income tax return is filed late. This relief applies to forms in both the Form 1040 and 1120 series, as well as others listed in Notice 2022-36, posted on IRS.gov and detailed in my article referenced above.

Tax pros and taxpayers should note that the failure-to-pay penalty plus interest is not waived

Unlike the failure-to-file penalty, the failure-to-pay penalty and interest will still apply to any unpaid tax. The failure-to-pay penalty is normally 0.5% (one-half-of-one percent) per month, up to 25%. The interest rate is currently 6%, compounded daily.

Returns for which penalty abatement is not available

The IRS notes that penalty relief for 2019 and 2020 returns is not available in some situations, such as where a fraudulent return was filed, where the penalties are part of an accepted offer in compromise or a closing agreement, or where the penalties were finally determined by a court. This relief is limited to the penalties that the notice specifically states are eligible for relief. For ineligible penalties, such as the failure-to-pay penalty, taxpayers may use existing penalty relief procedures, such as applying for relief under the reasonable cause criteria or the First Time Abate program. Visit IRS.gov/penaltyrelief for details.

Different penalty relief applies in disaster-relief declared areas for 2021 returns

For additional information about penalty relief for 2021 disaster-relief declared areas, see my article for details about penalty abatement and other relief granted by the IRS for taxpayers affected by Hurricanes Ian and Fiona.  

For continuing updates for tax year 2021 returns, see the disaster relief page on IRS.gov.