About 1.6 million individuals and businesses who were penalized for late filing of tax or information returns for 2019 and 2020 will receive a total of $1.2 billion in compensation from the IRS after the COVID pandemic led to a backlog of unprocessed returns in agency.
The removal of the penalty was outlined in an IRS notice released Wednesday, which said the money would be “automatically reduced, refunded or credited, as appropriate, without the need for the taxpayer to request this relief.”
The agency also said many payments would be completed by the end of September and fines would be reduced for people who have not yet paid their fines, Politico reported.
However, taxpayers must file their outstanding returns for the 2019 and 2020 tax years by September 30 to be eligible. Businesses that file information returns must meet different deadlines.
Refunds will not be issued to taxpayers who have accepted the agreement in cases where penalties are imposed by a court and penalties for non-payment of taxes are not automatically refunded.
“Penalty relief is a difficult issue for the IRS,” IRS Commissioner Chuck Rettig said in a statement. “We have been working on this initiative for months following the concerns we heard from taxpayers, the tax community and others, including Congress. This is another important step to help taxpayers and we urge those affected to review the guidance.”
The refund decision is also “designed to allow the IRS to focus its resources on processing outstanding tax returns and taxpayer correspondence to help return to business as usual for the 2023 filing season,” the agency said in a statement.
The decision to refund the penalty came after members of Congress from both parties pushed the IRS for more pandemic-related relief for taxpayers and to address the backlog of filings and refunds that occurred when the agency closed offices due to the pandemic and furloughed workers for remote work.
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