Questions and Answers About the Reporting Requirement Under Section 6050X

A1. The government or governmental entity must file an information return with the IRS if:

• It is a party to a suit with respect to which there has been a court order (suit) or an agreement with a payor (agreement);
• On the date the suit or agreement became binding under applicable law, the suit or agreement requires the payor to pay to, or at the direction of, the government or governmental entity an aggregate amount equal to or in excess of $50,000; and
• The payment is with respect to a violation of a law, or an investigation or inquiry into the potential violation of a law (potential violation of a law).

The government or governmental entity must file the information to the IRS on Form 1098-F, Fines, Penalties and Other Amounts, and furnish a written statement to the payor that provides the same information that was provided to the IRS.

A2. No. The $50,000 threshold amount does not include a late payment penalty and/or interest on the penalty the payor is subsequently required to pay. Whether the amount to be paid pursuant to the suit or agreement equals or exceeds the $50,000 amount is based only on the amounts the payor is required to pay on the date the suit or agreement becomes binding under applicable law.

A3. To meet the requirements under § 6050X, the government or governmental entity must file Form 1098-F, Fines, Penalties, and Other Amounts with the IRS and furnish a written statement, which provides the same information that was provided to the IRS, to each payor (for example, copy of Form 1098-F).

A4. If the government or governmental entity files the return with the IRS on paper, the Form 1098-F is due on or before February 28 of the year following the calendar year in which the suit or agreement became binding under applicable law. If it files the return with the IRS electronically, the Form 1098-F is due on or before March 31 of that year.

The government or governmental entity must furnish the written statement to the payor on or before January 31 of the year following the calendar year in which the suit or agreement became binding under applicable law.

A5. Yes.

A6. The term "suit or agreement" under § 6050X and the term "suit, agreement, or otherwise" under § 162(f) do not have the same meaning.

Under § 6050X, a "suit" concerns a violation of a law over which the government or government entity has authority and with respect to which there has been a court order; an "agreement" is entered with respect to a violation of a law, or potential violation of a law, over which the government or governmental entity has authority.

The term "suit, agreement, or otherwise," under § 162(f), is broader and includes, but is not limited to, suits; settlement agreements; orders; non-prosecution agreements; deferred prosecution agreements; judicial proceedings; administrative adjudications; decisions issued by officials, committees, commissions, or boards of a government or governmental entity; and any legal actions or hearings which impose a liability on the taxpayer or pursuant to which the taxpayer assumes liability.

Section 6050X requires the government or governmental entity to file an information return with respect to "amounts required to be paid as a result of the suit or agreement to which [section 162(f)(1)] applies." For example, when a government agency assesses a penalty, it must file a Form 1098-F when the payor pays the penalty or the agency enters an agreement with a payor pursuant to which the payor pays the penalty. However, the agency is not required to file a Form 1098-F when it assesses a penalty because the assessment is not a "suit… with respect to which there has been a court order" nor "an agreement" under § 6050X.

A7. The regulations under § 162(f) provide broad rules of general application based on the underlying principles of § 162(f). Therefore, instead of providing narrow rules with limited application regarding violations of a law and potential violations of a law, the regulations provide examples to illustrate the application of these principles to certain violations of a law and potential violations of a law.

A8. The "aggregate amount" the payor must pay under the suit or agreement is the payor's total payment amount including the payor's costs to provide services or to provide property. Therefore, the aggregate amount includes: (1) the amount the payor must pay for the violation, or the potential violation, of a law; (2) the amount which constitutes restitution and/or remediation; (3) the amount paid for the purpose of coming into compliance with the law; and (4) any other amounts enumerated or described in the suit or agreement.

A9. The government or governmental entity must file a Form 1098-F only if it reasonably expects that, under the suit or agreement, the aggregate amount the payor must pay will equal or exceed $50,000.

A10. No.

A11. Yes.

A12. In Box 1, the government or governmental entity must enter the aggregate amount the payor must pay pursuant to the suit or agreement if it reasonably expects that, under the suit or agreement, the aggregate amount the payor must pay will equal or exceed $50,000. If the suit or agreement does not provide a dollar amount for some or all of the aggregate payment, the government or governmental entity must enter $50,000 and enter code E, "Payment amount not identified," in box 9. (See the Instructions to Form 1098-F.)

A13. In Box 2, the government or governmental entity must enter the amount the payor must pay with respect to the violation or potential violation of a law. An amount paid with respect to the violation or potential violation of a law includes, but is not limited to, a fine or penalty. If the suit or agreement does not provide a dollar amount for some or all of this payment, the government or governmental entity must leave Box 2 blank and enter code E, "Payment amount not identified," in box 9. (See the Instructions to Form 1098-F.)

A14. In Box 3, the government or governmental entity must enter the amount the payor must pay pursuant to the suit or agreement which constitutes restitution or remediation of property. If the suit or agreement does not provide a dollar amount for some or all of the restitution or remediation payment, the government or governmental entity must leave Box 3 blank and enter code E, "Payment amount not identified," in box 9. (See the Instructions to Form 1098-F.)

A15. In Box 4, the government or governmental entity must enter the amount the payor must pay pursuant to the suit or agreement for the purpose of coming into compliance with the law. If the suit or agreement does not provide a dollar amount for some or all of the compliance payment, the government or governmental entity must leave Box 4 blank and enter code E, "Payment amount not identified," in box 9. (See the Instructions to Form 1098-F.)

A16. The requirements under § 6050X(a)(1) to report amounts paid for "restitution or remediation of property" or to come "into compliance with a law" do not require that such amounts be identified in the suit or agreement as restitution or remediation or to come into compliance with a law. Therefore, in Box 3, enter the amount required to be paid which constitutes restitution or remediation of property; in Box 4, enter the amount required to be paid for the purpose of coming into compliance with the law.

A17. No.

A18. If, pursuant to a suit or agreement, the payor is obligated to make multiple payments, equal to or in excess of $50,000, the government or governmental entity:

• Files a Form 1098-F to report the total amount to be paid and the amount to be paid as restitution (including remediation) and to be paid to come into compliance with the law; and
• Enters Code A in Box 9.

A19. Yes. The government or governmental entity must file a Form 1098-F if the total amount required to be paid pursuant to multiple suits or agreements with respect to the same payor or payors and the same violation or violations of a law or potential violation or violations of a law, equals or exceeds $50,000. However, the government or governmental entity must file only one Form 1098-F for the aggregate amount required to be paid as a result of these multiple suits or agreements with respect to the same payor or payors.

A20. Yes. If, pursuant to a suit or agreement, the aggregate amount multiple individually liable payors are liable to pay equals or exceeds $50,000, the government or governmental entity must file a separate Form 1098-F for each individually liable payor to report the amount each payor is required to pay, even if the individual payor's payment liability is less than $50,000. The government or governmental entity must also furnish a written statement to each payor.

A21. No. The government or governmental entity should not file a Form 1098-F with respect to any party with no payment obligation under the suit or agreement.

A22. Yes. If, pursuant to a suit or agreement, the aggregate amount multiple jointly and severally liable payors are liable to pay equals or exceeds $50,000, the government or governmental entity must file a Form 1098-F for each jointly and severally liable payor to report the total amount required to be paid by all of the jointly and severally liable payors. The government or governmental entity must also furnish a written statement to each jointly and severally liable payor.

A23. No.

A24. Although the government or governmental entity must determine if it reasonably expects that, under the suit or agreement, the aggregate amount the payor must pay will equal or exceed $50,000, it is not required to estimate any separate amount the payor is required to pay for the violation or potential violation of a law, for restitution or remediation, or to come into compliance with the law.

A25. The "appropriate official" is required to file Form 1098-F on behalf of the government or governmental entity. In general, the "appropriate official" is an officer or employee of the government or governmental entity assigned by the government or governmental entity to comply with the information reporting requirement.

A26. The government or governmental entity must make its best effort to obtain the payor's TIN. It may request the TIN in any manner; the request should include notification that the law requires the payor to furnish a TIN and that failure to furnish a TIN may subject the payor to a penalty. However, the government or governmental entity must file the Form 1098-F even if the payor does not provide the TIN.

A27. Yes.

A28. Yes.

A29. The law requires a government or a governmental entity to file a Form 1098-F with the IRS, and furnish a written statement to the payor that provides the same information provided to the IRS, regarding a suit, court order, or an agreement with respect to certain payments made to, or at the direction of, a government or governmental entity for a violation, or potential violation, of law. This statement has been furnished to you pursuant to that law.

A30. Generally, no deduction is allowed for amounts paid or incurred to, or at the direction of, a government or governmental entity in relation to the violation, or potential violation, of the law by such government or governmental entity. However, a taxpayer may deduct amounts that: (1) the taxpayer establishes were paid or incurred as restitution (including remediation of property) or to come into compliance with a law, and (2) are identified in a court order or settlement agreement as restitution, remediation, or to come into compliance with a law. If an amount is listed as an "Amount to be paid for violation or potential violation" in Box 2 of the Form 1098-F, it does not necessarily mean that the amount is not deductible. In addition, if an amount is listed as a "Restitution/remediation amount" in Box 3, or a "Compliance amount" in Box 4, of the Form 1098-F, it does not necessarily mean that the amount is deductible. For guidance on whether an amount is deductible, consult § 162(f) of the Internal Revenue Code and the final regulations under § 162(f).

A31. No. Retain this statement for your records.