On August 24, 2022, the Internal Revenue Service (the “IRS”)issued its Notice2022-36 providing relief for certain failure to file penalties with respect to 2019 and 2020 tax returns provided that the late returns are filed on or before September 30, 2022.  The IRS also issued an accompanying news release, IR-2022-155, providing background on the relief provided. According to the news release, in addition to providing relief for taxpayers affected by the COVID-19 pandemic, the relief provided by Notice 2022-36 “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.”

The notice stated that any forgiven penalties will be automatically abated without any need for taxpayers to request this relief. The accompanying news release also stated that taxpayers who have already paid eligible penalties will receive refunds or credits.

Of some importance to Canadian US tax filers, the relief appears to be applicable to most commonly filed US income tax returns:

• The Form 1040 series of individual income tax returns
• The Form 1041 and Form 3520 series of trust returns (the Form 3520 series of forms attract an automatic $10,000 USD penalty per late form)
• The Form 1120 series of corporate income tax returns
• The Form 990 series of non-profit organization returns

In addition to the common US income tax return, this relief is of great value to certain US tax filers as it appears to be also be applicable to certain high penalty information returns such as the Form 5471 -Information Return of U.S. Persons With Respect To Certain Foreign Corporations(automatic $10,000 USD penalty per late form) and Form 5472 - Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business (automatic $25,000 USD penalty per late form).

Tax professionals expect additional guidance to be issued by the IRS to provide some clarity. If you have any questions, please contact Terence Wong, KRP’s Director of International Taxation.

Information provided is of a general nature and deals with time sensitive information that could change. Information may not apply to your particular facts and circumstances and should not be relied upon in lieu of seeking advice from your professional advisors. Neither KRP nor its partners, directors, contractors or employees will be liable for any actions taken from reliance on this information. Links to other websites or publications are provided for your convenience only and you may access them at your own risk. By supplying this information, KRP is not providing tax, accounting, legal, or professional service or advice.

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If you have any questions, please contact Terence Wong, KRP’s Director of International Taxation.

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