Do not overlook increased information return penalties in trade legislation

Increased information return penalties

Trade legislation (Trade Preferences Extension Act of 2015) enacted in late June 2015, includes a number of tax-related provisions as revenue offsets—and specifically, significant increases in penalties for failures to file correct information returns under section 6721, and for failures to furnish correct payee statements under section 6722

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Information returns and payee statements subject to these penalties include Forms 1099, 1098,  W-2, 1042-S, as well as new Forms 1094-B, 1095-B, 1094-C, and 1095-C required under the Affordable Care Act.

The increased penalty amounts apply to returns and statements required to be filed and furnished after December 31, 2015. Thus, the increased penalty amounts listed below are effective beginning with 2015 calendar year information returns and payee statements that are due in early 2016.

Section 6721 penalties

The penalties under section 6721 for failures to file correct information returns are increased to:

  • $250 for each information reporting failure (up from $100)
  • $3 million for the annual maximum penalty amount for reporting failures (up from $1.5 million)

The penalty amounts that can be reduced if the failure is corrected are also increased:

  • If the failure is corrected within 30 days, the penalty is $50 for each reporting failure (up from $30), and the annual maximum penalty amount is $500,000 (up from $250,000).
  • If the failure is corrected within 30 days but on or before August 1, the penalty will increase to $100 for each reporting failure (up from $60), and the annual maximum penalty amount is $1.5 million (up from $500,000).

Section 6722 penalties

The penalties for failures to furnish correct payee statements under section 6722 are increased to:

  • $250 for each reporting failure (up from $100)
  • $3 million for the annual maximum penalty amount for reporting failures (up from $1.5 million)

The penalty amounts that can be reduced if the failure is corrected are also increased:

  • If the failure is corrected within 30 days, the penalty is $50 for each reporting failure (up from $30), and the annual maximum penalty amount is $500,000 (up from $250,000).
  • If the failure is corrected within 30 days but on or before August 1, the penalty is $100 for each reporting failure (up from $60), and the annual maximum penalty amount is $1.5 million (up from $500,000).

Intentional disregard of reporting requirements

The minimum penalty under sections 6721 and 6722 for each reporting failure due to an intentional disregard of the reporting requirements increases to $500 (up from $250), and the annual maximum penalty amount will not apply as under prior law.

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