During the COVID-19 period, many taxpayers and businesses experienced disruptions that affected their ability to file returns and pay taxes on time. What many taxpayers do not realize is that the IRS has provided several forms of penalty relief connected to the federally declared disaster period related to COVID-19.
In some cases, taxpayers may qualify for a refund or abatement of penalties that were previously assessed and paid.
Why Relief May Be Available
The President of the United States issued a federal disaster declaration related to COVID-19 beginning in 2020. Because of this declaration, the IRS used its authority under federal law to provide filing extensions, payment relief, and penalty relief for certain taxpayers affected by the disaster period.
The IRS has also recognized that many taxpayers faced circumstances beyond their control, including:
- Business shutdowns
- Delays in receiving records
- Employee shortages
- Illness
- Supply chain interruptions
- Delayed professional services
- Financial hardship
- Government office closures
These circumstances may support a request for penalty abatement or refund.
Types of Penalties That May Qualify
Potential penalties that may qualify for review include:
- Failure to File penalties
- Failure to Pay penalties
- Payroll tax penalties
- Estimated tax penalties
- Information return penalties
- Certain collection-related penalties
Each case must be reviewed individually, and eligibility depends on the facts and timing involved.
IRS Administrative Relief
The IRS has already issued broad relief in some situations, including automatic penalty relief programs for certain tax periods. However, many taxpayers may still qualify for additional relief that was not automatically applied.
Taxpayers who already paid penalties during the COVID period may still be able to request a refund if the request is timely and supported properly.
Time Limits Matter
There are time limits for requesting refunds of penalties already paid. In many situations, the request must be made within:
- 2 years from the date the penalty was paid, or
- 3 years from the filing date of the return,
depending on the circumstances.
Because of these deadlines, it is important to review IRS notices and account transcripts promptly.
What Information May Be Needed
To review whether relief may be available, the following items are often helpful:
- IRS notices received
- Tax returns for the affected periods
- Proof of penalty payments
- Payroll records
- Copies of IRS correspondence
- Documentation showing how COVID affected operations
Our Office Can Help Review Your Situation
Not every taxpayer will qualify, but many taxpayers are surprised to learn that relief may still be available.
Our office can help review:
- Whether penalties were assessed correctly
- Whether the COVID disaster declaration may apply
- Whether reasonable cause relief is available
- Whether refund claims are still timely
- Whether IRS transcripts support a claim
If you have received IRS penalty notices or previously paid IRS penalties during the COVID period, this may be a good time to review your account.