The IRS has provided interim guidance on the deductions for qualified tips and qualified overtime compensation under the One Big Beautiful Bill Act (OBBBA) (P.L. 119-21). For tax year 2025, employers and other payors are not required to separately account for cash tips or qualified overtime compensation on Forms W-2, 1099-NEC, or 1099-MISC furnished to individual taxpayers.

The IRS provided guidance on changes relating to health savings accounts (HSAs) under the One, Big, Beautiful Bill Act (OBBBA) (P.L. 119-21). These changes generally expand the availability of HSAs under Code Sec. 223.

The IRS provided guidance on changes relating to health savings accounts (HSAs) under the One, Big, Beautiful Bill Act (OBBBA) (P.L. 119-21). These changes generally expand the availability of HSAs under Code Sec. 223.

Background

To access HSAs, individual taxpayers (1) need to be covered under a high-deductible health plan (HDHP) and (2) should not have other disqualifying health coverage. The minimum annual deductible for an HDHP in 2025 is $1,650 for self-only coverage and $3,300 for family coverage. The out-of-pocket maximum for TY 2025 is $8,300 for self-only coverage and $16,600 for family coverage.

OBBBA Changes

The OBBA made a few key changes to HDHPs and, by extension, HSAs. First, it made permanent a safe harbor for HDHPs that have no deductible for telehealth and other remote care services. The OBBBA permanent extension applies retroactively after December 31, 2024.

Second, the term HDHP now includes any plan under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) that is available as individual coverage through an exchange, including bronze and catastrophic plans. Before the OBBBA was enacted, many bronze plans did not qualify as HDHPs because the plans’ out-of-pocket maximum exceeded the statutory limits for HDHPs or because they provided benefits that were not preventive care without a deductible. Similarly, catastrophic plans could not be HDHPs because they were required to provide three primary care visits before the minimum deductible was satisfied and to have an out-of-pocket maximum that exceeded the statutory limits for HDHPs. This provision amending the definition of an HDHP applies for months after December 31, 2025.

Finally, direct primary care service arrangements (DPCSA) under Code Sec. 223(c)(1)(E)(ii) are no longer treated as a health plan for purposes of determining HSA eligibility and enrollment, and enrolling in a DPCSA will not cause a taxpayer to fail eligibility to contribute to an HSA. These DPCSAs changes would apply after December 31, 2025.

Q&As

The IRS answered several common questions from the public regarding these three provisions with regards to administration and eligibility.

Notice 2026-5

IR 2025-119

The IRS has answered initial questions regarding Trump accounts, which it intends to address in forthcoming proposed regulations. The guidance addresses general questions relating to the establishment of the accounts, contributions to the accounts, and distributions from the accounts under Code Secs. 128, 530A, and 6434. Comments, specifically on issues identified in the notice, should be submitted in writing on or before February 20, 2026, by mail or electronically.

The IRS has answered initial questions regarding Trump accounts, which it intends to address in forthcoming proposed regulations. The guidance addresses general questions relating to the establishment of the accounts, contributions to the accounts, and distributions from the accounts under Code Secs. 128, 530A, and 6434. Comments, specifically on issues identified in the notice, should be submitted in writing on or before February 20, 2026, by mail or electronically.

Establishment of the Accounts

An account may be established for the benefit of an eligible individual by making an election on Form 4547, Trump Account Election(s), or through an online tool or application on trumpaccounts.gov. A Trump account may be created at the same time that an election is made to receive a pilot program contribution. A Trump account is a traditional IRA under Code Sec. 408(a).

A rollover Trump account can only be established after the initial Trump account is created and during the growth period of the account, which is the period that ends before January 1 of the calendar year in which the account beneficiary attains age 18. A rollover account must first be funded by a qualified rollover contribution before receiving any other contribution. Additional rules regarding the choice of trustee, rollover accounts, and the written government instrument requirements are discussed in section III.A of the notice.

Pilot Program and Contributions

The election to receive a pilot program contribution is made on Form 4547 or through the online tool, once available. Pilot program contributions will be deposited into the Trump account of an eligible child no earlier than July 4, 2026.

Trustees of Trump accounts must maintain procedures to prevent contributions from exceeding the annual limit of Code Sec. 530A(c)(2)(A). Trustees are required to collect and report the amount and sources of contributions. Contributions may be made to a Trump account and to an individual retirement arrangement for the same individual during the growth period in accordance with the rules of Code Secs. 408 and 530A(c)(2).

Qualified general contributions will be transferred by the Treasury Department or its agent to the trustee of a Trump account pursuant to a general funding contribution. More information on how and where permitted entities will make an application to make a general funding contribution will be provided before the application process opens.

An employer can exclude up to $2,500 from the gross income of an employee for a contribution made by the employer to a Trump account contribution program. The annual limit is per employee, not per dependent. A Trump account contribution may be made by salary reduction under a Code Sec. 125 cafeteria plan if the contribution is made to the Trump account of the employee's dependent and not if the contribution is made to the Trump account of the employee.

Eligible Investments

The terms "mutual fund" and "exchange traded fund" are explained, with additional comments requested on their definitions. The tracking of returns of an index and leverage for purposes of Trump accounts are also described. A mutual fund or exchange traded fund will meet the requirements of having annual fees and expenses of no more than 0.1% of the balance of the investment fund if the sum of its annual fees and expenses is less than 0.1% of the value of the fund's net assets. Additional questions regarding eligible investments are discussed in section III.D of the notice.

Distributions

Only permitted distributions, which are qualified rollover contributions or qualified ABLE rollover contributions, excess contributions, or distributions upon the death of an account beneficiary, are allowed during the growth period. Hardship distributions during the growth period are not allowed. If an account beneficiary dies after the growth period, the rules that apply to other individual retirement accounts after the death of the account owner apply. If the Trump account beneficiary dies during the growth period, the account ceases to be a Trump account and an IRA as of the date of death.

Reporting and Coordination with IRA Rules

Annual reporting by the Trump account trustee is required. Forms and instructions will be issued in the future. After the growth period, distributions from Trump accounts are governed by the IRA distribution rules of Code Sec. 408(d).

Notice 2025-68

IR 2025-117

The IRS intends to issue proposed regulations to implement Code Sec. 25F, as added by the One Big Beautiful Bill Act (OBBBA) (P.L. 119-21). Code Sec. 25F allows a credit for an individual taxpayer's qualified contribution to a scholarship granting organization (SGO) providing qualified elementary and secondary scholarships.

The IRS intends to issue proposed regulations to implement Code Sec. 25F, as added by the One Big Beautiful Bill Act (OBBBA) (P.L. 119-21). Code Sec. 25F allows a credit for an individual taxpayer's qualified contribution to a scholarship granting organization (SGO) providing qualified elementary and secondary scholarships.

Tax Credit

Beginning January 1, 2027, individual taxpayers may claim a nonrefundable federal tax credit for cash contributions to SGOs. Taxpayers must be citizens or residents of the United States. The credit allowed to any taxpayer is limited to $1,700. The credit is reduced by the amount allowed as a credit on any state tax return. Additionally, to prevent a double benefit, no deduction is allowed under Code Sec. 170 for any amount taken into account as a qualified contribution for purposes of the Code Sec. 25F credit.

SGO Requirements

An organization can qualify as an SGO after satisfying conditions that include (1) being a Code Sec. 501(c)(3) organization that is exempt from tax under Code Sec. 501(a) and not a private foundation; (2) maintaining one or more separate accounts exclusively for qualified contributions; (3) appearing on the list submitted for the applicable covered state under Code Sec. 25F(g); and (4) providing scholarships to 10 or more students who do not all attend the same school, as well as meeting certain other requirements.

Request for Comments

The forthcoming proposed regulations describe the certification process currently envisioned by the Treasury Department and the IRS for covered states to elect to participate under Code Sec. 25F . The IRS requests comments on these matters before December 26, 2025, through the Federal e-Rulemaking portal (indicate “IRS-2025-0466”). Paper submissions should be sent to: Internal Revenue Service, CC:PA:01:PR (Notice 2025-70), Room 5503, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.

Notice 2025-70

IR-2025-115

The IRS has disclosed the first set of certifications for the qualifying advanced energy project credit under Code Sec. 48C(e).

The IRS has disclosed the first set of certifications for the qualifying advanced energy project credit under Code Sec. 48C(e) for the period beginning:

• March 29, 2024, through September 30, 2025, resulting from the Round 1 allocation; and
• January 10, 2025, through September 30, 2025, resulting from the Round 2 allocation.

The Service also disclosed the identities of taxpayers and amounts of the Code Sec. 48C credits allocated to said taxpayers.

Background

Notice 2023-18, I.R.B. 2023-10, established a program to allocate $10 billion of credits for qualified investments in eligible qualifying advanced energy projects under Code Sec. 48C(e)(1). Code Sec. 48C(e)(4)(A) provides a base credit rate of 6 percent of the qualified investment. In cases where projects satisfy Code Secs. 48C(e)(5)(A) and (6), the Service would provide an alternative rate of 30 percent of the qualified investment.

Certification

Each applicant for certification has two years from the date of acceptance of the Code Sec. 48C(e) application. During this time, the applicant needs to submit evidence that the requirements of the certification have been met. The IRS will publish additional notices annually for certifications issued during each successive 12-month period beginning on October 1, 2025 for both Round 1 and 2.

Announcement 2025-22

Announcement 2025-23

The IRS and Treasury Department have provided procedures for a state to elect to be a “covered state” to participate with the Code Sec. 25F credit program for calendar year 2027 prior to identifying any scholarship granting organizations (SGOs) in the state. Form 15714 is used by a state to make the advanced election.

The IRS and Treasury Department have provided procedures for a state to elect to be a “covered state” to participate with the Code Sec. 25F credit program for calendar year 2027 prior to identifying any scholarship granting organizations (SGOs) in the state. Form 15714 is used by a state to make the advanced election.

Background

For tax years beginning after 2026, a U.S. citizen or resident alien may claim a nonrefundable personal tax credit of up to $1,700 for qualified contributions made to a scholarship granting organization (SGO). A qualified contribution is a charitable contribution of cash to an SGO that uses the contribution to fund scholarship for eligible K-12 students.

In order for a contribution made by a taxpayer to an SGO in a state (or the District of Columbia) to be a qualified contribution eligible for the credit, the state must elect participate in the credit program and must identify by January 1 of each calendar year a list of qualified SGOs in the state.

Advanced Election for 2027

A state may make an advanced election using Form 15714 to be a covered state for the Code Sec. 25F credit for the 2027. The form may be submitted any time after December 31, 2026, and before the day before the final date on which the State is permitted to submit the State SGO list (as will be specified in future guidance).

The advance election will allow a state to inform potential SGOs of the state’s participation in the credit before submitting a full SGO limit to the IRS. Any SGO list submitted with Form 15714 will not be processed by the IRS and the state will need to resubmit the list as specified in future guidance. Once a state’s advance election has been made on Form 15714 for calendar year 2027, the only subsequent submission the IRS will accept is the official submission of the state’s SGO list for the calendar year.

Rev. Proc. 2026-6

IR 2025-121

The IRS has formally withdrawn two proposed regulations that would have clarified how married individuals may obtain relief from joint and several tax liability. The withdrawal affects taxpayers seeking protection under Code Sec. 6015 and relief from federal income tax obligations tied to State community property laws under Code Sec. 66.

The IRS has formally withdrawn two proposed regulations that would have clarified how married individuals may obtain relief from joint and several tax liability. The withdrawal affects taxpayers seeking protection under Code Sec. 6015 and relief from federal income tax obligations tied to State community property laws under Code Sec. 66.

The two notices of proposed rulemaking—originally issued on August 13, 2013 (78 FR 49242), and November 20, 2015 (80 FR 72649)—offered procedural guidance for requesting equitable, innocent spouse, or separation of liability relief. These proposals also reflected statutory amendments introduced by the Tax Relief and Health Care Act of 2006 and evolving jurisprudence. The Treasury Department and the IRS decided to halt progress on these rules due to the passage of time, the scope of public comments, and resource prioritization.

While the agency acknowledged the regulatory need in this area, it cited the volume and breadth of feedback as grounds for reassessment. The IRS clarified that any future rules addressing these issues would require new proposals and another round of public comment, in line with current statutory frameworks and legal developments.

Importantly, this withdrawal does not prevent the issuance of new regulations on joint and several liability relief. Nor does it alter existing statutory or regulatory obligations in place under current law. The IRS retains authority under 26 U.S.C. 7805 to revisit and re-propose rules as necessary.

The withdrawal was announced by the IRS and Treasury on December 15, 2025, and was signed by Frank J. Bisignano, Chief Executive Officer. Tax professionals and affected individuals should continue to rely on existing law and procedures when seeking relief under Code Secs. 6015 and 66.

Proposed Regulations, NPRM REG-132251-11; REG-134219-08

The American Institute of CPAs has voiced its opposition to the Internal Revenue Service’s proposal to combine the Office of Personal Responsibility and the Return Preparer Office

The American Institute of CPAs has voiced its opposition to the Internal Revenue Service’s proposal to combine the Office of Personal Responsibility and the Return Preparer Office.

“The AICPA has an extensive and resolute history of steadfastly supporting initiatives that would enhance compliance, elevate ethical conduct, and protect taxpayer confidence in our tax system,” the organization said in a November 14, 2025, letter to the directors of the two offices. “The proposed combination of OPR and RPO contravenes those principles.” A copy of this and other AICPA 2025 tax policy and advocacy comment letters can be found here.

AICPA said it “strongly opposes any efforts to combine OPR and RPO because it would inappropriately consolidate credentialed and uncredentialed return preparers under OPR, create potential conflicts of interest, and divert resources from the primary role of OPR.”

It added that the merger “would sow confusion among taxpayers trying to understand the differing qualifications and practice rights of preparers, which would harm taxpayers and erode taxpayer confidence in our tax system.”

AICPA noted that OPR “has the exclusive delegated authority to interpret and enforce the regulations in Treasury Department Circular 230 (Circular 230), which governs tax practitioners interacting with the tax administration system,” while RPO “administers the Preparer Tax Identification Number (PTIN) program, manages the enrolled agent practitioner program, encourages enrollment in the Annual Filing Season Program (AFSP), and processes some complaints against return preparers.”

“These two offices perform dissimilar government functions, oversee different types of preparers, and, therefore, should remain separate to avoid potential conflicts of interest,” AICPA said in the letter.

AICPA argued that the combination would divert resources away from the primary role of OPR and could undermine the credibility of OPR’s enforcement objective.

“Under a combined OPR unit, unscrupulous and incompetent preparers could readily misrepresent that they are subject to ethical obligations overseen by the ‘Office of Professional Responsibility,’ which would give such preparers a foothold to abuse taxpayers and undermine public trust and accountability in the tax profession,” AICPA stated in the letter.

By Gregory Twachtman, Washington News Editor

The IRS has released the annual inflation adjustments for 2023 for the income tax rate tables, plus more than 60 other tax provisions. The IRS makes these cost-of-living adjustments (COLAs) each year to reflect inflation.

The IRS has released the annual inflation adjustments for 2023 for the income tax rate tables, plus more than 60 other tax provisions. The IRS makes these cost-of-living adjustments (COLAs) each year to reflect inflation.

2023 Income Tax Brackets

For 2023, the highest income tax bracket of 37 percent applies when taxable income hits:

• $693,750 for married individuals filing jointly and surviving spouses,
• $578,125 for single individuals,
• $578,100 for heads of households,
• $346,875 for married individuals filing separately, and
• $14,450 for estates and trusts.

2023 Standard Deduction

The standard deduction for 2023 is:

• $27,700 for married individuals filing jointly and surviving spouses,
• $20,800 for heads of households, and
• $13,850 for single individuals and married individuals filing separately.

The standard deduction for a dependent is limited to the greater of:

• $1,250 or
• the sum of $400, plus the dependent’s earned income.

Individuals who are blind or at least 65 years old get an additional standard deduction of:

• $1,500 for married taxpayers and surviving spouses, or
• $1,850 for other taxpayers.

Alternative Minimum Tax (AMT) Exemption for 2023

The AMT exemption for 2023 is:

• $126,500 for married individuals filing jointly and surviving spouses,
• $81,300 for single individuals and heads of households,
• $63,250 for married individuals filing separately, and
• $28,400 for estates and trusts.

The exemption amounts phase out in 2023 when AMT exceeds:

• $1,156,300 for married individuals filing jointly and surviving spouses,
• $578,150 for single individuals, heads of households, and married individuals filing separately, and
• $94,600 for estates and trusts.

Expensing Code Sec. 179 Property in 2023

For tax years beginning in 2023, taxpayers can expense up to $1,160,000 in Code Sec. 179 property. However, this dollar limit is reduced when the cost of Code Sec. 179 property placed in service during the year exceeds $2,890,000.

Estate and Gift Tax Adjustments for 2023

The following inflation adjustments apply to federal estate and gift taxes in 2023:

• the gift tax exclusion is $17,000 per donee, or $175,000 for gifts to spouses who are not U.S. citizens;
• the federal estate tax exclusion is $12,920,000; and
• the maximum reduction for real property under the special valuation method is $1,310,000.

2023 Inflation Adjustments for Other Tax Items

The maximum foreign earned income exclusion amount in 2023 is $120,000.

The IRS also provided inflation-adjusted amounts for the:

• adoption credit,
• earned income credit,
• excludable interest on U.S. savings bonds used for education,
• various penalties, and
• many other provisions.

Effective Date of 2023 Adjustments

These inflation adjustments generally apply to tax years beginning in 2023, so they affect most returns that will be filed in 2024. However, some specified figures apply to transactions or events in calendar year 2023.

The 2023 cost-of-living adjustments (COLAs) that affect pension plan dollar limitations and other retirement-related provisions have been released by the IRS. In general, many of the pension plan limitations will change for 2022 because the increase in the cost-of-living index due to inflation met the statutory thresholds that trigger their adjustment. 

The 2023 cost-of-living adjustments (COLAs) that affect pension plan dollar limitations and other retirement-related provisions have been released by the IRS. In general, many of the pension plan limitations will change for 2022 because the increase in the cost-of-living index due to inflation met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged.

The 2023 cost-of-living adjustments (COLAs) were released for:

• pension plan dollar limitations, and
• other retirement-related provisions.

Highlights of Changes for 2023

The contribution limit has increased from $20,500 to $22,500 for employees who take part in:

• 401(k),
• 403(b),
• most 457 plans, and
• the federal government’s Thrift Savings Plan

The annual limit on contributions to an IRA increased from $6,000 to $6,500.

The catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

The income ranges increased for determining eligibility to make deductible contributions to:

• IRAs,
• ROTH IRAs, and
• to claim the Saver's Credit.

Phase-Out Ranges

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. The deduction phases out if the taxpayer or their spouse takes part in a retirement plan at work. The phase out depends on the taxpayer's filing status and income.

• For single taxpayers covered by a workplace retirement plan, the phase-out range is $73,000 to $83,000, up from between $68,000 and $78,000.
• For joint filers, when the spouse making the contribution takes part in a workplace retirement plan, the phase-out range is $116,000 to $136,000, up from between $109,000 and $129,000.
• For an IRA contributor, who is not covered by a workplace retirement plan but their spouse is, the phase out is between $218,000 and $228,000, up from between $204,000 and $214,000.
• For a married individual covered by a workplace plan filing a separate return, the phase-out range remains between $0 and $10,000.

The phase-out ranges for Roth IRA contributions are:

• $138,000 and $153,000, for singles and heads of household,
• $218,000 and $228,000, for joint filers, and
• $0 to $10,000 for married separate filers.

The income limit for the Saver' Credit is:

• $73,000 for joint filers,
• $54,750 for heads of household, and
• $36,500 for singles and married separate filers.

Lastly, the amount individuals can contribute to their SIMPLE retirement accounts is increased to $15,500, up from $14,000.

For 2023, the Social Security wage cap will be $160,200, and social security and Supplemental Security Income (SSI) benefits will increase by 8.7 percent. These changes reflect cost-of-living adjustments to account for inflation.

For 2023, the Social Security wage cap will be $160,200, and social security and Supplemental Security Income (SSI) benefits will increase by 8.7 percent. These changes reflect cost-of-living adjustments to account for inflation.

Wage Cap for Social Security Tax

The Federal Insurance Contributions Act (FICA) tax on wages is 7.65 percent each for the employee and the employer. FICA tax has two components:

• a 6.2 percent social security tax, also known as old age, survivors, and disability insurance (OASDI); and
• a 1.45 percent Medicare tax, also known as hospital insurance (HI).

For self-employed workers, the Self-Employment tax is 15.3 percent, consisting of:

• a 12.4 percent OASDI tax; and
• a 2.9 percent Medicare tax.

OASDI tax applies only up to a wage base, which includes most wages and self-employment income up to the annual wage cap.

For 2023, the wage base is $160,200. Thus, OASDI tax applies only to the taxpayer’s first $160,200 in wages or net earnings from self-employment. Taxpayers do not pay any OASDI tax on earnings that exceed $160,200.

There is no wage cap for Medicare tax.

Maximum Social Security Tax for 2023

For workers who earn $160,200 or more in 2023:

• an employee will pay a total of $9,932.40 in social security tax ($160,200 x 6.2 percent);
• the employer will pay the same amount; and
• a self-employed worker will pay a total of $19,864.80 in social security tax ($160,200 x 12.4 percent).

Additional Medicare Tax

Higher-income workers may have to pay an Additional Medicare tax of 0.9 percent. This tax applies to wages and self-employment income that exceed:

• $250,000 for married taxpayers who file a joint return;
• $125,000 for married taxpayers who file separate returns; and
• $200,000 for other taxpayers.

The annual wage cap does not affect the Additional Medicare tax.

Benefit Increase for 2023

A cost-of-living adjustment (COLA) will increase social security and SSI benefits for 2023 by 8.7 percent. The COLA is intended to ensure that inflation does not erode the purchasing power of these benefits.

The IRS announced broad-based penalty relief for taxpayers affected by the COVID-19 pandemic. The relief applies to failure to file penalties and certain international information return (IIR) penalties with respect to tax returns for tax years (TY) 2019 and TY 2020, filed on or before September 30, 2022.

The IRS announced broad-based penalty relief for taxpayers affected by the COVID-19 pandemic. The relief applies to failure to file penalties and certain international information return (IIR) penalties with respect to tax returns for tax years (TY) 2019 and TY 2020, filed on or before September 30, 2022. Relief is also provided to banks, employers and other businesses from certain information return penalties with respect to TY 2019 returns filed on or before August 1, 2020, and with respect to TY 2020 returns that were filed on or before August 1, 2021.

The relief will also help the IRS focus resources on processing backlogged tax returns and tax correspondence.

In response to the COVID-19 pandemic, the IRS issued a series of notices and other guidance to provide relief to affected taxpayers, including:

• postponing the due date for certain Federal income tax payments ( Notice 2020-17, I.R.B. 2020-15, 590);
• expanded relief postponing the due date for filing Federal income tax returns originally due April 15, 2020, to July 15, 2020, among other things ( Notice 2020-18, I.R.B. 2020-15, 590); and
• postponing the due date for filing Federal income tax returns in the Form 1040 series and making certain Federal income tax payments that were originally due on April 15, 2021, due on May 17, 2021 ( Notice 2021-21, I.R.B. 2021-15, 986.

Waiver and Abatement of Certain Penalties

The IRS will not impose penalties with respect to specifically identified tax returns for TY 2019 and TY 2020, filed on or before September 30, 2022. The relief will be automatically applied-taxpayers do not have to request relief.

The IRS will not impose additions to tax under Code Sec. 6651(a)(1) for failure to file the following income tax returns:

• Form 1040, U.S. Individual Income Tax Return, and others in the series;
• Form 1041, U.S. Income Tax Return for Estates and Trusts, and others in the series;
• Form 1120, U.S. Corporation Income Tax Return, and others in the series;
• Form 1066, U.S. Real Estate Mortgage Investment Conduit (REMIC) Income Tax Return; and
• Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation and Form 990-T, Exempt Organization Business income Tax Return (and Proxy Tax under Code Sec. 6033(e)).

Further, certain penalties will not be imposed under Code Secs. 6038, 6038A, 6038C, 6038F [ 6039F] and 6677 for failure to timely file several IIRs, such as Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations.

Comment. Note that the Notice refers to Code Sec. 6038F, which does not exist. The context indicates that the reference should be to Code Sec. 6039F. The IRS may issue a correction.

Certain penalties will not be imposed under Code Sec. 6698(a)(1) and (2) for failure to timely file and show the required information on a Form 1065, U.S. Return of Partnership Income.

Certain penalties will not be imposed under Code Sec. 6699(a)(1) and (2) for failure to timely file and show the required information on a Form 1120-S, U.S. Income Tax Return for an S corporation.

In addition, the IRS will not impose the penalties under Code Sec. 6721(a)(2)(A) for failure to timely file any information return as defined under Code Sec. 6724(d)(1) that includes (1) 2019 returns that were filed on or before August 1, 2020, with an original due date of January 31, 2020, February 28, 2020 (if filed on paper) or March 31, 2020 (if filed electronically) or March 15, 2020; and (2) 2020 returns that were filed on or before August 1, 2021, with an original due date of January 31, 2021, February 28, 2021 (if filed on paper) or March 31, 2021 (if filed electronically) or March 15, 2021.

Exceptions

The penalty relief does not apply to any penalties not listed. Additionally the penalty relief does not apply to returns for which the penalty for fraudulent failure to file under Code Sec. 6651(f) or the penalty for fraud under Code Sec. 6663 apply. The penalty relief also does not apply to penalties in an accepted offer in compromise under Code Sec. 7122 or any penalty settled in a closing agreement under Code Sec. 7121 or finally determined in a judicial proceeding.

NTA Applauds IRS Move To Provide Late Filing Penalty Relief

National Taxpayer Advocate Erin Collins applauded the Internal Revenue Service’s decision to provide late-filing penalty relief to taxpayers who filed late tax returns for tax years 2019 and 2020.

"The IRS has taken a major step in providing broad, taxpayer-favorable relief from late-filing penalties for 2019 and 2020 tax years," Collins said in an August 24, 2022 blog post, adding that the agency " deserves substantial credit for its willingness to listen to Congress, stakeholders, and TAS [Taxpayer Advocate Service], and undertake a bold step requiring significant administrative effort and resources to benefit all taxpayers affected by the pandemic".

Businesses are still waiting for pandemic relief made available to them during the COVID-19 outbreak amid ongoing processing delays at the Internal Revenue Service, according to the Treasury Inspector General for Tax Administration.

Businesses are still waiting for pandemic relief made available to them during the COVID-19 outbreak amid ongoing processing delays at the Internal Revenue Service, according to the Treasury Inspector General for Tax Administration.

According to an August 31, 2022, report posted to the TIGTA web site, the IRS "did not begin processing claims for qualified Sick and Family Leave Credits and the Employee Retention Credit for 12 months and claims for the Social Security Tax Deferral for 16 months after the pandemic relief legislation was enacted."

TIGTA attributed this delay to a "lack of updated programming and procedural guidance," as well as a "lack of training, erroneously suspended claims, and a lack of prioritization of claims" that contributed to the delays in processing claims.

Employers filing claims for these pandemic benefits would have filed a Form 941-X, which would have amended a previously filed Form 941 if they did not make the initial claim for these benefits on the Form 941 or if they needed to amend the amount of original claim on the already-filed Form 941.

"As of February 1, 2022, there were 447,435 Forms 941-X waiting to be processed," the report states. "Over 90 percent (402,814) of these Forms 941-X were over-aged, i.e. have not been processed within 45 calendar days. In addition, 60,885 (13.6 percent of the Forms 941-X were not processed within 180 calendar days."

TIGTA described the over-aged inventory as "an ongoing challenge for the IRS."

Additionally, the IRS watchdog found claims that should have been reviewed but were not resulted "in $45 million in potentially erroneous nonrefundable employer tax credits being allowed" when they otherwise might not have had proper reviews been conducted.

TIGTA recommends that IRS develop a plan to prioritize processing backlogged claims, update the examination referral process, and update training for IRS employees regarding referrals. IRS did not agree with the latter recommendations, but did all others stated in the report.

"Management stated they completed subsequent review of completed Form 941-X claims and determined no additional training was needed," the report states. "However, the IRS’s subsequent reviews do not address the concerns identified in our report. Accounts Management employees cited unclear guidance and training as to why 73 percent of claims were not referred when required."