The American Institute of CPAs (AICPA) has applauded the Internal Revenue Service for granting automatic penalty relief related to select 2019 and 2020 returns, but asked for two tweaks to the process:

The group wants the IRS to both extend the filing deadline to Dec. 31, 2022, and expand and clarify the list of eligible returns and penalties.

Request to Extend Deadline for Three Months

As we previously discussed in an earlier alert, the IRS set a Sept. 30, 2022 deadline for taxpayers to qualify for automatic penalty relief. The process was announced in Notice 2022-36 as part of the IRS’s ongoing COVID-19 relief efforts.

In a letter to the IRS, however, the AICPA asked the government to move back the deadline to Dec. 31, 2022.

The AICPA cited September and October tax deadlines, the complexity of international information reporting, and the fact that many affected taxpayers live abroad. The group said the various factors created an insurmountable burden on taxpayers and tax professionals to meet the current deadline.

Request to Clarify and Expand Penalty Relief

In a second letter to the IRS, the AICPA suggests expansion and clarification of Notice 2022-36 penalty relief. The AICPA would like the IRS to:

• expand the scope of automatic failure to file penalty relief to taxpayers who have a failure to file penalty assessed during examination or if the taxpayer is at Appeals or in Collection
• provide blanket reasonable cause relief for all penalties imposed during the 2019 and 2020 tax years
• include amended returns filed by the relief deadline
• include all international information returns
• expand failure to file penalty relief to exempt organizations
• expand relief to include the failure to pay penalty
• expand penalty relief to additional returns, including:
  • Series 706, estate tax returns
  • gift tax returns
  • excise tax returns
  • Series 940, unemployment tax returns
  • Series 941, employer’s quarterly returns
  • Series 943, agricultural returns
  • Series 990, exempt organization returns
  • annual withholding tax returns for U.S. source income of foreign persons
  • reports of foreign bank and financial accounts
• expand relief to additional tax years, including 2021 and 2016-2018 for international information reporting penalties
• clarify that Notice 2022-36 relief is not considered first time abatement
• provide notification to taxpayers if they have penalties waived
• clarify the criteria for penalty relief for fiscal year filers

In support of these requests, the AICPA notes that it is a hallmark of tax policy to treat similarly situated taxpayers the same. For instance, granting failure to file penalty relief to a partnership that filed a delinquent return that includes a Form 5471, but not to a partnership that filed an amended return to include a delinquent Form 5471 creates an inequity and is bad tax policy. In addition to equity, the AICPA also cites the ongoing pandemic, including the delta and omicron variants in 2021 and 2022, as additional reasons to expand the scope of relief.

The Takeaway

After Notice 2022-36 was issued, tax professionals were immediately concerned with the short window in which to qualify for penalty relief. In response, the AICPA and its more than 400,000 professionals urge the IRS to extend the deadline and expand the scope of the IRS’s historic COVID-19 penalty relief.

Still, the Sept. 30 deadline stands, and time remains of the essence. Don’t miss out on this unique, limited-time opportunity to avoid failure-to-file penalties.

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