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Rules Governing Practice before IRS

Increase in Information Return Penalties

Effective with returns due after January 1, 2016, penalties for not filing correct information returns and/or not furnishing correct payee statements have increased and are now subject to inflationary adjustments.

Examples of affected forms include: Forms 1098, 1099, W-2G and W-2.

The amount of the penalty is based on when you file the correct information return or furnish the correct payee statement. The penalty for not filing a correct information return is separate from the penalty for not providing the correct payee statement. For example, if you don’t file a correct Form 1099-MISC with the IRS and don’t provide a correct Form 1099-MISC statement to the payee, you may be subject to two separate penalties.

To Avoid Penalties

Beginning with the 2016 tax year:

Employers must send Copy A of Forms W-2 and W-3 to the Social Security Administration by January 31 of the following year for both paper and electronic forms.

Employers must furnish Copy B and any other applicable copies of information returns to the employee by January 31 of the following year.

Businesses, including tax exempt and government entities, must send Copy A of Form 1099-MISC to the IRS by:

  • January 31 of the following year when you’re reporting non-employee compensation payments in Box 7;
  • February 28 if filing by paper when you’re NOT reporting non-employee compensation in Box 7; or
  • March 31 if filing electronically when you’re NOT reporting non-employee compensation in Box 7. 

In years prior to the 2016 tax year:

Businesses, including tax exempt and government entities, must send Copy A of Forms 1098, 1099, W-2G and other information returns to the Internal Revenue Service with transmittal Form 1096 by:

  • The last day of February of the following year if filing by paper; or
  • March 31 if filing electronically.

Employers were also required to send Copy A of Form W-2 to the Social Security Administration with transmittal Form W-3 by:

  • The last day of February of the following year if filing by paper; or
  • March 31 if filing electronically.

In addition, employers filing 250 or more information returns must file electronically unless granted a waiver by the IRS.

Penalty Rates

The penalty rates and maximums for not filing correct information returns and/or not furnishing correct payee statements, including inflationary adjustments if applicable, are reflected in the following table (*-as adjusted for inflation):

Large Businesses with Gross Receipts of More Than $5 Million and Government Entities
(*Average annual gross receipts for the most recent 3 taxable years) IRC 6721 & IRC 6722
Time returns filed/furnished Due 01-01-2011
thru 12-31-2015
Due 01-01-16
thru 12-31-2016
(inflation adjusted)
Due 01-01-17
thru 12-31-2017
(inflation adjusted)
Due 01-01-18
thru 12-31-2018
(inflation adjusted)
Not more than 30 days late
(by March 30 if the due date is February 28)
$30 per return/
$250,000 maximum
$50 per return/
$529,500 maximum
$50 per return/
$532,000 maximum
$50 per return/
$536,000 maximum
31 days late – August 1 $60 per return/
$500,000 maximum
$100 per return/
$1,589,000 maximum
$100 per return/
$1,596,500 maximum
$100 per return/
$1,609,000 maximum
After August 1 or Not At All $100 per return/
$1,500,000 maximum
$260 per return/
$3,178,500* maximum
$260 per return/
$3,193,000 maximum
$260 per return/
$3,218,500 maximum
Intentional Disregard $250 per return/
No limitation
$520 per return/
No limitation
$530 per return/
No limitation
$530 per return/
No limitation

Note: Increased penalty amounts may apply for certain failures in the case of intentional disregard.
See IRC 6721(e)(2) and IRC 6722(e)(2).

Small Businesses with Gross Receipts $5 Million or Less
(*Average annual gross receipts for the most recent 3 taxable years) IRC 6721 & IRC 6722
Time returns filed/furnished

Due 01-01-2011
thru 12-31-2015

Due 01-01-16
thru 12-31-2016
(inflation adjusted)
Due 01-01-17
thru 12-31-2017
(inflation adjusted)
Due 01-01-18
thru 12-31-2018
(inflation adjusted)
Not more than 30 days late
(by March 30 if the due date is February 28)
$30 per return/
$75,000 maximum
$50 per return/
$185,000 maximum
$50 per return/
$186,000 maximum
$50 per return/
$187,500 maximum
31 days late – August 1 $60 per return/
$200,000 maximum
$100 per return/
$529,500 maximum
$100 per return/
$532,000 maximum
$100 per return/
$536,000 maximum
After August 1 or Not At All $100 per return/
$500,000 maximum
$260* per return/
$1,059,500 maximum
$260 per return/
$1,064,000 maximum
$260 per return/
$1,072,500 maximum
Intentional Disregard $250 per return/
No limitation
$520 per return/
No limitation
$530 per return/
No limitation
$530 per return/
No limitation

Penalties for not filing correct information returns (Code Section 6721) may apply if you:

  • Don’t file a correct information return by the due date and a reasonable cause is not shown;
  • File on paper when you were required to file electronically;
  • Don’t report a Taxpayer Identification Number (TIN);
  • Report an incorrect TIN; or
  • Don’t file paper forms that are machine readable.

Penalties for not providing correct payee statements (Code Section 6722) may apply if:

  • You don’t provide a correct payee statement by the applicable date and a reasonable cause isn’t shown;
  • All required information isn’t shown on the statement; or
  • Incorrect information is included on the statement.

For more information on penalties, information returns and payee statements, see General Instructions for Certain Information Returns (PDF) and General Instructions for Forms W-2 and W-3 (PDF).

References

Public Law (P.L.) 113-295, Section 208

Public Law (P.L.) 114-27 Section 806 (PDF)

Rev. Proc. 2016-11
Rev. Proc. 2015-53
Rev. Proc. 2016-55