Congress increases information return penalties

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Penalties for the failure to file correct information returns and to provide payee statements have more than doubled as a result of legislation passed by Congress and signed into law by the president on June 29. The increase in penalties is effective for returns required to be filed after Dec. 31, 2015.

The Trade Preferences Extension Act of 2015 (H.R. 1295) contained various revenue raisers, including the increases in the failure-to-file penalties under Sections 6721 and 6722.

Currently, the penalty for failure to file a correct information return with the IRS under Section 6721, or to provide a correct payee statement under Section 6722, is $100 for each return for which such a failure occurs, up to $1.5 million per calendar year. The new legislation increases those amounts to $250 per failure and $3 million per calendar year.

Under Sections 6721(b) and 6722(b), the penalty for failure to file such statements with either the IRS or the payee is reduced if the payor takes corrective action within a certain amount of time. If the failure is corrected within 30 days of the required filing date of the information return or payee statement, the penalty is reduced to $30 per return if the total amount of penalties, after corrective action, is $250,000 or less. The new legislation increases that amount to $50 per return and increases the threshold to $500,000.

Similarly, if failures are corrected after 30 days of the required filing date of the information return or payee statement, but before Aug. 1, penalties are reduced to $60 per return as long as total penalties, after corrective action, are $500,000 or less. The new legislation increases that amount to $100 per return and increases the threshold to $1.5 million.

The legislation also modifies the threshold amounts for taxpayers with gross receipts of $5 million or less. In addition, it increases the penalty per return required to be filed from $250 to $500 for cases of intentional disregard.

The failure-to-file penalties under Sections 6721 and 6722 generally affect the following IRS forms, which may include various iterations for reporting certain types of income or transactions:

  • Series Forms 1099, “Miscellaneous Income”
  • Forms 1098, “Mortgage Interest Statement”
  • Form 1097, “Bond Tax Credit”
  • Form W-2, “Wage and Tax Statement”
  • Form W-2G, “Certain Gambling Winnings”
  • Form 5498, “IRA Contribution Information”

This list is not exhaustive, and other information returns may be required to be filed under Sections 6721 and 6722. Penalties imposed for failure to correctly file a required information return or payee statement may also be abated under Section 6724 if the failure resulted from reasonable cause and not willful neglect.

David Auclair
+1 202 521 1515

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