IRS Reminds Employers of Penalty Relief Related to Claims for Employee Retention Credit

A couple of weeks ago we covered the IRS backlog of amended payroll tax returns (941X) for employee retention credits.

Now, the Treasury and IRS have responded to requests from taxpayers for relief from penalties with IR-2022-89.

 Why?   Because most taxpayers were apprehensive of reporting the ERC refunds as income (reduction of wages) for 2020 or 2021 when they had no idea when or if they would receive the refunds. Also, many claimed they were unable to pay the additional tax without the corresponding refund.

This release reminds taxpayers that, consistent with the relief from penalties for failure to timely pay noted in Notice 2021-49, they may be eligible for relief from penalties for failing to pay their taxes if they can show reasonable cause and not willful neglect for the failure to pay. In general, taxpayers may also qualify for administrative relief from penalties for failing to pay on time under the IRS’s First Time Penalty Abatement program if the taxpayer:

  1. Did not previously have to file a return or had no penalties for the three prior tax years,
  2. Filed all currently required returns or filed an extension of time to file and
  3. Paid, or arranged to pay, any tax due.

As we file extended 2021 returns and also amend previously filed returns, we’ll be looking for opportunities to abate penalties. If you have questions, please contact our team.