The headlines are dangling a carrot, and you’re biting like a starving mule. "The IRS may owe you money!" they scream. They point to Notice 2022-67 and the sweeping relief for 2019 and 2020 tax penalties. They want you to believe the government found its conscience and decided to hand back billions in late-filing fees out of the goodness of its bureaucratic heart.
It didn't. Discover more on a similar topic: this related article.
The IRS didn’t "pardon" you. It cleared its desk.
In the wake of the pandemic, the agency was drowning in 8 million unprocessed paper returns and a backlog that looked more like a landfill than a federal office. They waived those penalties because the cost of processing your appeals and manual math was higher than the value of the checks. If you are sitting around waiting for a $500 refund check to "save" your fiscal year, you have already lost the game. More journalism by Financial Times explores related perspectives on this issue.
Chasing a refund for a penalty you already paid is like trying to retrieve a tip from a waiter three years after a bad meal. It’s small-time thinking. While the "experts" tell you how to fill out Form 843, they are ignoring the massive, structural leaks in your tax strategy that cost you ten times what a penalty ever will.
The IRS Backlog Myth
The common narrative suggests the IRS is back to "normal." This is a lie. The agency is currently attempting to modernize a codebase that literally runs on COBOL—a programming language that predates the moon landing. When they announce "penalty relief," it is a tactical retreat, not a gift.
By accepting this "relief" as a win, you’re validated in your mediocrity. You’re being told it’s okay to file late because, hey, once every century, a global plague might get you a hall pass.
I have watched high-net-worth individuals spend $5,000 in billable hours with CPAs to chase a $2,200 penalty refund. The math is offensive. The "lazy consensus" says you should always fight for what’s yours. I say your time has a market value, and you’re selling it to the government for pennies on the dollar.
Your CPA is Not Your Friend
Most people think their tax preparer is a shield. In reality, most CPAs are historians. They tell you what happened last year and record it on the appropriate line. They are compliant-driven, not strategy-driven.
When a CPA tells you to "apply for the COVID-19 penalty relief," they are giving you a low-value task to keep you happy while they ignore the fact that your business structure is hemorrhaging money through self-employment taxes or poorly managed depreciation schedules.
- Fact: The IRS issued over $1.2 billion in refunds for failure-to-file penalties.
- The Nuance: That money is already eroded by inflation. A dollar paid in 2020 and returned in 2024 is worth 20% less in purchasing power.
If you didn’t have the liquidity to handle that penalty in 2020, you didn't have a tax problem; you had a cash flow problem. Chasing the refund doesn't fix the cash flow. It just adds a line item to a broken ledger.
The Trap of Failure to File
People ask, "Should I wait for the IRS to automatically send the check?"
The premise is flawed. You shouldn't be in a position where an "automatic" government check changes your life. If you are eligible for the 2019/2020 relief, it means you failed the most basic requirement of being a functional citizen in a capitalist society: you didn't file your paperwork.
The penalty for failure to file is generally $5%$ of the unpaid taxes for each month or part of a month that a tax return is late. This maxes out at $25%$.
$$Penalty = (Unpaid Tax \times 0.05) \times Months Late$$
The "relief" everyone is buzzing about only covers the penalty, not the interest. The IRS is still keeping the interest. They are the house, and the house always wins. While you celebrate getting your $5%$ back, they are still charging you market rates on the principal you failed to remit.
Stop Thinking Like a Debtor
The obsession with refunds is a symptom of a "debtor mindset." A refund is simply an interest-free loan you gave to the government. If you get a large refund every year, you are failing at math. You should aim to owe the IRS exactly $0$—or better yet, owe them a small amount that you've kept in a high-yield account all year.
The Real Cost of Being "Right"
I’ve seen entrepreneurs derail their entire Q3 focus because they were embroiled in a dispute over a "First Time Abate" (FTA) waiver. They wanted to prove the IRS was wrong about a late filing.
Here is the hierarchy of tax value:
- Tax Avoidance (Legal): Structuring your life so you never owe the money (Real Estate Professional Status, Section 179, Defined Benefit Plans).
- Tax Deferral: Paying tomorrow what you owe today (1031 Exchanges, 401ks).
- Tax Compliance: Filing on time to avoid the noise.
- Tax Recovery (The Bottom): Begging for your money back.
The competitor articles want you to stay at level 4. It’s easy content. It generates clicks from people who feel victimized by the system. But being a victim is expensive.
The Brutal Truth About IRS Modernization
The $80 billion in funding the IRS received isn't going toward "better customer service" for you. It’s going toward AI-driven audit selection. The "relief" you’re claiming now puts you on the radar.
When you file an amended return or a claim for a refund, a human—or increasingly, an algorithm—looks at your file. You are inviting scrutiny for a marginal gain. If your "creative" deductions are standing on shaky ground, claiming a $1,200 penalty refund is the fastest way to trigger an audit that costs you $12,000.
Is the "coronavirus-era fine" refund real? Yes.
Is it worth your mental bandwidth? Almost certainly not.
How to Actually "Beat" the IRS
If you want to disrupt the status quo, stop looking at the rearview mirror. The 2020 penalties are sunk costs.
Instead of filing Form 843, do this:
- Audit Your Entity: If you’re a freelancer making over $60k and you aren't an S-Corp, you’re throwing away thousands in SE taxes. That’s your real "penalty."
- Max the "Hidden" Accounts: Everyone knows the IRA. Not everyone utilizes the HSA as a triple-tax-advantaged investment vehicle.
- Document Everything: The IRS doesn't win because they are smarter; they win because you are disorganized. They rely on "Cohan Rule" limitations to deny deductions that lack a paper trail.
The "experts" will tell you to "check your mail" for an IRS check. I’m telling you to burn the mail and go build a business that makes a $500 penalty look like a rounding error.
The government isn't your savior, and a refund isn't a windfall. It’s a crumb dropped from the table of a system that already ate your lunch. Stop looking at the floor for crumbs and get back to the table.
File your papers. Pay your dues. Move on. Use your brain to make money, not to scavenge for leftovers from the 2020 tax year.
The door to the vault is closed. Stop knocking. Build your own vault.
