Taxpayers Face July 10 Deadline to Claim Pandemic-Era Penalty Refunds

WASHINGTON – The Internal Revenue Service has set a final deadline of July 10 for millions of American individuals and businesses to claim refunds for certain penalties assessed on late-filed tax returns from the 2019 and 2020 tax years. Taxpayers who fail to file the requisite returns by this date will permanently forfeit their eligibility for this specific COVID-era relief.

The impending deadline stems from relief the IRS announced in August 2022 through Notice 2022-36. The agency offered to abate or refund failure-to-file penalties for a wide range of tax returns for the 2019 and 2020 tax years, a period marked by significant disruption due to the COVID-19 pandemic. The original deadline to file these returns to qualify for relief was September 30, 2022, but the IRS has provided this final extension.

The relief applies specifically to the failure-to-file penalty, which is typically assessed at a rate of 5% of the unpaid tax for each month or part of a month that a return is late. The penalty can accumulate up to a maximum of 25% of the taxpayer's outstanding tax liability. This relief does not apply to other penalties, such as the failure-to-pay penalty or penalties for fraudulent filings.

The IRS estimated that nearly 1.6 million taxpayers would automatically receive refunds or credits totaling $1.2 billion when the program was first announced. However, many more may still be eligible, particularly those who have not yet filed their 2019 or 2020 returns. The relief covers a broad spectrum of tax forms, affecting not just individual filers (Form 1040 series) but also numerous business and entity returns.

For small and mid-sized businesses, the relevant forms include the 1120 series for corporations, Form 1065 for partnerships, and Form 990-T for exempt organizations with unrelated business income. It also applies to certain international information returns, such as Forms 5471 and 5472, which carry significant penalties for non-compliance. Given the operational chaos many businesses faced during 2020 and 2021—from mandatory shutdowns and supply chain breakdowns to transitioning to remote work—many fell behind on their tax compliance obligations.

The financial stakes for businesses can be substantial. For a company that owed $100,000 in taxes for 2019 but filed its return five months late, the failure-to-file penalty would amount to $25,000. Under this relief program, that entire amount could be refunded if it was already paid, or abated if it remains outstanding, provided the underlying return is filed by July 10.

The chaos of the early pandemic years meant many business owners were focused squarely on operational survival, not administrative deadlines. In our experience, many companies that paid these penalties simply wrote them off as a cost of doing business during a crisis and are unaware they may be entitled to a refund. This isn't just an unexpected windfall; it is a deliberate IRS concession acknowledging that timely compliance was nearly impossible for many well-meaning businesses during that period. Recovering these funds requires a proactive review of past filings.

To qualify for the relief, taxpayers who have not yet filed their 2019 or 2020 returns must do so by the July 10 deadline. The IRS has stated that the relief will be applied automatically to any eligible return filed by that date. No special request is necessary.

For those who have already filed their returns but paid the penalty, the IRS was supposed to issue automatic refunds or credits. However, taxpayers who believe they are eligible but have not received a refund should review their account transcripts or contact the IRS. It is possible that some cases were missed or require additional action. Filing an amended return is generally not necessary to claim this specific penalty relief. The key action is ensuring the original return for the tax year in question is on file with the agency.

This deadline marks the closing of another chapter of pandemic-related financial relief programs that provided a critical cushion for the U.S. economy. As these programs wind down, the IRS is simultaneously shifting its posture back toward more rigorous enforcement. The agency, newly funded by the Inflation Reduction Act, has repeatedly stated its intention to increase audit rates, particularly for high-income individuals, large corporations, and complex partnerships. The period of leniency that characterized the pandemic years is clearly coming to an end.

This transition from widespread relief to heightened enforcement underscores the need for diligent record-keeping and compliance. A deadline like this is a perfect example of how complex administrative rules can create significant financial opportunities or liabilities that are easy for busy executives to miss. Proactive tax preparation and compliance is not just about meeting annual deadlines; it's about continuously managing a company's financial position relative to a constantly changing regulatory landscape. To ensure your business has captured all eligible refunds and is prepared for the new era of IRS scrutiny, contact the experts at C&S Finance Group LLC at csfinancegroup.com.

Looking ahead, businesses should anticipate a less forgiving compliance environment. The expiration of this penalty relief program is a signal that the IRS is returning to pre-pandemic operational standards. Business owners and financial managers should work with their advisors to ensure their tax strategies and documentation are robust enough to withstand increased scrutiny in the coming years.