On August 29, the IRS released a new section of the Internal Revenue Manual (IRM), 220.127.116.11.3.2.2, providing penalty relief for certain taxpayers filing 2019 and 2020 returns in response to the notice. 2022-36, published August 1. 24, 2022. See GT Alert, “IRS Grants Penalty Relief for 2019 and 2020, But…”
Notice 2022-36 provides relief from certain failure to file penalties, certain international return penalties, and certain information return penalties for the 2019 and 2020 tax years, if returns are filed by September 30, 2022. However, the notice is ambiguous as to who is eligible for the late-filed international information return relief and which specific international information returns are subject to the relief. For example, the notice indicates that penalty relief is available for Forms 5471 and 5472 attached to a late-filed Form 1120 or 1065, but the notice does not specify whether relief is available for all filers in the series. 1120 and makes no mention of Forms 5471 and 5472 attached to the late-filed Forms 1040 and 1041.
The revisions to the IRM confirm that only the following international information reports are eligible for penalty relief under the Notice:
- Form 5471, U.S. Persons Information Statement Regarding Certain Foreign Companies;
- Form 5472, Information Statement of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a Trade or Business in the United States;
- Form 3520, Annual return to report transactions with foreign trusts and receipt of certain foreign donations; and
- Form 3520-A, Annual Information Return of a Foreign Trust with a US Owner (under section 6048(b)).
Because the IRM does not include any limiting examples as to which filers are entitled to relief from these specific international feedback penalties, relief is available to all taxpayers filing returns in the Forms series. 1040, the 1120 series of forms, including Forms 1120-S and 1120-F, Forms 1065, and Forms 1041. imposed by an IRS service center or campus, not for penalties imposed as a result of an IRS. exam.
The IRM reviews follow the notice by excluding any other international information reporting from penalty relief under Notice 2022-36. For example, neither Form 8938, Statement of Specified Foreign Financial Assets, nor form 8865Return of U.S. Persons with Respect to Certain Foreign Partnerships, is eligible for relief. No explanation is provided as to why certain international information returns have been excluded.
The IRM revisions also address whether the first-time penalty abatement (ALE) will override the relief provided in the notice. The IRM clarifies that relief under Notice 2022-36 will take precedence, preserving the FTA for future use.