The 2022 Global Penalty Relief | Notice 2022-36 | Who qualifies and who does not? Relevant Implications for taxpayers with international assets/accounts

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Fernando Juarez

Fernando Juarez



Fernando is a member of the International Tax Practice at Freeman Law. He advises on complex U.S. and international tax planning. His tax practice focuses on cross-border transactions. Beyond planning, his experience includes voluntary disclosures, FBARs and international compliance.

Fernando’s expertise in tax planning extends to Fortune 500 companies, family offices, medium & small businesses, and individuals with foreign holdings. His primary areas of expertise include inbound structures for international investors, and outbound tax planning for U.S. based companies.

Fernando received his law degree from the Escuela Libre de Derecho in Mexico City and holds a Master’s in Laws from Stanford Law School, where he served as the first Hispanic Chair of the Stanford Tax Club.

Speaking engagements include presentations at the NAEA, the Texas Association of Enrolled Agents (TXSEA), the Tax Executives Institute in Houston, the Start Up Week in San Antonio, the Hispanic Chamber of Commerce in San Antonio, the International Section of the Dallas Bar Association, the Organization for the Economic Cooperation and Development (OECD) in Paris, France, and the International Tax Symposium organized by Freeman Law, among others.

The 2022 Global Penalty Relief | Notice 2022-36 | Who qualifies and who does not? Relevant Implications for taxpayers with international assets/accounts.

The IRS has just released Notice 2022-36 which provides an automatic relief (the “relief”) for certain tax returns for 2019 and 2020. This means that if a taxpayer qualifies for the relief, the specified penalties will be abated in full and, when the penalties have already been paid, the IRS will issue a refund.

To properly understand the scope of the relief, it must be noted that only returns for 2019 and 2020 qualify for relief. Second, the returns must have to be filed by September 30, 2022. In other words, if the respective returns for 2019 and 2020 have not yet been filed, a taxpayer has until September 30, 2022 to submit those returns and still qualify for relief.

Third, the following returns qualify for the relief:

Series/Type of return Tax Form Type of penalty abated
1040, Individual Tax Returns 1040, 1040-NR, 1040 (PR), 1040-SR, 1040-SS Failure to File (FTF)
1041, Tax Returns for Estates and Trusts 1041, 1041-N FTF
1120, Tax Returns for Corporations 1120, 1120-C, 1120-S, 1120-F, 1120-FSC, 1120-H, 1120-L, 1120-ND, 1120-PC, 1120-POL, 1120-REIT, 1120-RIC, 1120-SF FTF
Return for Real Estate Mortgage Investment Conduit 1066
Return for Private Foundations/ Exempt Organizations 990-PF, 990-T
Information Return Of U.S. Persons With Respect To Certain Foreign Corporations 5471 FTF – $10,000 USD per form not filed
Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business 5472 FTF – $25,000 USD per form not filed
Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts 3520/3520-A FTF – For foreign trusts, 35% of value of trust/property transferred to trust.

For foreign gifts, 5% of gift value up to a maximum of 25% penalty

Tax Return for Partnerships 1065 FTF
Information returns 1099 (all types) 1042, W-2 FTF. In this particular case, the information return must have an original due date of January 31, 2020, February 28, 2020 or March 31, 2020 (For 2019) and same periods for 2021 (for 2020)

Although the relief is welcomed news, taxpayers must be aware that this penalty relief is of limited scope. Individual taxpayers and small businesses are clear winners for this relief. 1040s and the most common types of 1120s are included within the relief, including returns for S-corporations (1120-S). Also, partnership and estate/trust returns are included within the relief (1065/1041).

However, the benefits for individuals and businesses with foreign holdings are quite limited. For example, taxpayers that are noncompliant with international reporting obligations for multiple years. In those cases, the relief would only apply to 2019 and 2020 and only to those returns that are included above. In these particular cases, other options are a safer route, such as the Streamlined Offshore Procedures, which reduces exposure for multiple years and forms not included in the relief.

In this regard, relevant forms are not included within the scope of this relief. For clients with international holdings, Forms 8938 and FBARs are not included in the automatic relief. These reporting forms are among the most important reporting forms for taxpayers and the fact that they do not qualify for the automatic relief, again, pushes taxpayers with foreign holdings to consider other alternatives, including the Streamlined Procedures. Other less common forms such as 8865 (Return With Respect to Certain Foreign Partnerships), or 8858 (Information Return With Respect to Foreign Disregarded Entities) are also not included within the scope of the relief.

It is relevant to note that the relief is explicitly not applicable to returns for which a penalty for fraudulent failure to file has been assessed (under Section 66541(f)), or if the IRS has accepted an Offer in Compromise that includes the late filed penalty. Also, relief is not applicable to penalties settled in a closing agreement (section 7121) or that have been finally determined in a judicial proceeding.

Finally, although Notice 2022-36 provides that the relief will apply automatically, we expect taxpayers to encounter mismatches of information, or penalties not being abated. In those cases, it will be relevant to reach out to the IRS to obtain proper relief.

Based on the limited scope of the relief and the limited timeframe to qualify for relief, especially for taxpayers with international returns submission, time is of the essence to review the particular case and any possible non-compliance which may qualify under Notice 2022-36.