The Internal Revenue Service said it will forgive late fees to more than a million taxpayers who struggled to file certain 2019 or 2020 returns on time during the Covid-19 pandemic.
The agency, in a news release yesterday, said nearly 1.6 million taxpayers will automatically receive more than $1.2 billion in refunds or credits. The penalty relief impacts both individuals and businesses and many of the payments will be completed by the end of September.
The relief, the agency explained, applies to the failure to file penalty, which is typically assessed at a rate of 5% per month and up to 25% of the unpaid tax when a federal income tax return is filed late.
The IRS, which has been criticized by lawmakers for poor customer service and processing delays, said the move to relieve taxpayers of the penalties is “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.”
Faced with staffing shortages, shuttered processing centers during the pandemic, and the added burden of delivering multiple rounds of Covid-19 stimulus checks to millions of Americans, the agency struggled with processing refunds and reaching a customer service agent resulted in long waits. The agency is still trying to recover despite receiving relief from Congress.
The Inflation Reduction Act, recently signed by President Joe Biden, includes an appropriation of $80 billion over the next decade to the IRS and related agencies for, among other purposes, taxpayer services, operation support and enforcement of the tax code.
“Throughout the pandemic, the IRS has worked hard to support the nation and provide relief to people in many different ways,” IRS Commissioner Chuck Rettig said in a statement. “The penalty relief issued today is yet another way the agency is supporting people during this unprecedented time. This penalty relief will be automatic for people or businesses who qualify; there's no need to call."
Rettig added that the agency has been working on the penalty-free initiative for months after hearing from taxpayers, Congress and others. “This is another major step to help taxpayers, and we encourage those affected by this to review the guidelines,” he said.
To be eligible for the relief, 2019 tax returns must have been filed by August 1, 2020, and 2020 returns must have been filed by August 1, 2021. Taxpayers must file income tax returnw before September 30 to qualify for the relief.
The IRS noted that refunds are not available to taxpayers who filed a fraudulent return “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.”