Penalties for not filing correct information returns may apply if a filer:
- Does not file a correct information return by the due date, including extensions, and does not show that the failure was due to a reasonable cause and not willful neglect.
- Files on paper when required to file electronically and does not have a waiver to file electronically, which has become more important given recent proposed efile rules. (This penalty applies separately to original returns and corrected returns)
- Does not report a Taxpayer Identification Number (TIN) or report an incorrect TIN.
- Does not file machine-readable paper returns.
Penalties for not providing correct payee statements may apply if a filer:
- Does not provide a correct payee statement by the applicable date and does not show that the failure was due to a reasonable cause and not willful neglect.
- Does not include all required information on the statement.
- Includes incorrect information on the statement.
Intentional Disregard can include, but are not limited to:
- A history of noncompliance or prior audit results establishing a history of noncompliance.
- Failure to keep adequate books and records.
- Inadequate internal controls.
- Failure to respond to inquiries from the IRS.
The IRS bases penalty amounts on when the filer files an incorrect information return or when the filer furnishes an incorrect information return to the payee or recipient. These penalties are separate and distinct. As an example, an incorrect Form 1099-MISC filed with the IRS will receive a separate penalty from an incorrect Form 1099-MISC furnished to a payee or recipient. This scenario has the potential to result in two penalties.
Filers should keep in mind the following:
- Always be aware of filing deadlines and dates. Keeping a tax calendar on hand for all departments involved in the tax reporting process is very helpful.
- Build in operational processes to your calendar to include tasks such as confirming that tax reporting software has been updated to include the latest revisions of IRS published tax and information returns.
- Include a yearend or more frequent reconciliation process to confirm correct information is feeding your reporting system and identify any issues and resolution prior to reporting.
- Request IRS transcripts to further reconcile amounts deposited to amounts withheld and confirm what that you will be reporting what you expected to report – withholding equals federal deposits.
- Remember, filers with 250 or more information returns must file electronically unless granted a waiver by the IRS.
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