IRS will refund $1.2B in late-filing penalties

Refunds won’t be available to taxpayers who have already accepted a compromise offer or closing agreement with the IRS, where penalties were determined by a court or for fraudulent returns. Fines for failing to pay taxes won’t be automatically refunded either.

The relief will cover individuals; banks, employers and individuals required to file information returns; and filers of various international information returns.

“Besides providing relief to both individuals and businesses impacted by the pandemic, this step 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 agency said in a statement.

Some background: The IRS has been under pressure by members of Congress from both parties to provide more Covid-related relief to taxpayers. It’s also being pressed to clear a backlog of returns and other paperwork that piled up while agency offices were temporarily closed due to the pandemic and most of its employees were working remotely.

“Penalty relief is a complex issue for the IRS to administer,” IRS Commissioner Chuck Rettig said in a statement. “We’ve been working on this initiative for months following concerns we’ve heard from taxpayers, the tax community and others, including Congress. This is another major step to help taxpayers, and we encourage those affected by this to review the guidelines.”