Background
The Internal Revenue Service (IRS) considers information return penalties an important tool to collect, at the least cost, the proper amount of tax revenue. Penalties help the IRS achieve this goal because the threat of a penalty generally enhances voluntary compliance.
Penalties for not filing or furnishing the required information returns, such as Forms 1095, 1098, 1099 and W-2, have risen significantly over the years. In 1990, the penalty for not timely filing or furnishing the payee a required information return was a maximum of $50 per form. For the 2022 reporting period, this has risen to a maximum of $280 per form. Moreover, failing to both timely file and to timely furnish can result in a penalty of $560 per form.
General Filing and Furnishing Requirements for the 2022 Reporting Period
Most of the common information return forms must be filed by February 28, 2023 if filed by paper. Electronic returns, which are mandatory for large information return filers, must be filed by March 31, 2023. Depending on the form series and number, payees must have furnished their copy by either January 31, 2023 or February 15, 2023.
Penalty Criteria
The IRS, per Section 6721 of the tax code, can impose a penalty for each of the
following failures related to information returns:
- Failure to file
- Filed with a missing/incorrect taxpayer identification number (TIN) (or other missing or incorrect information)
- Filed untimely
- Filed on paper when electronic filing was required (incorrect media)
- Filed in an incorrect format (not processable)
- Any combination of the above
Also, failure to furnish correct payee statements may be imposed in addition to the Section 6721 penalty if, for example, a return was filed late and the payee statement was furnished late.
IRS Information Return Penalty Notices
The most common IRS penalty notice is Notice 972CG, Notice of Proposed Civil Penalty.Notice 972CG proposes a penalty for information returns that were filed late, filed on incorrect media, filed with a missing or incorrect TIN or a combination of these failures. This notice accounts for over 75 percent of information return penalty cases.
Disputing a Notice 972CG Penalty
The most common way to dispute a penalty proposed in Notice 972CG is to make a reasonable cause argument. In a reasonable cause argument, the information return filer sets forth all the facts to show that the filer acted in a responsible manner.
The IRS internal guidance to its employees in deciding these cases states that reasonable cause for information return penalties generally exists when the filer acted in a responsible manner, both before and after the failure occurred,and there are significant mitigating factors, or the failure was the result of circ*mstances beyond the filer’s control.
Events generally considered by IRS to be significant mitigating factors include a first-time filer who had not previously been required to file information returns or a filer with a history of complying with the information return reporting requirements
According to the IRS, acting in a responsible manner generally includes exercising the same degree of care that a reasonably prudent person (or organization) would use in the course of business in determining filing obligations and in handling account information.
We’re Here to Help
Bennett Thrasher’s Tax Controversy team has vast experience in navigating how best to respond to IRS information return penalty notices. For more information on our Tax Controversy services, please contactJames Pickett, Director of our practice,by calling770.396.2200.
I am a seasoned expert in tax regulations and compliance, specializing in IRS information return penalties. With a deep understanding of the intricate details of tax codes, I have successfully navigated complex cases related to information return penalties, earning a reputation for providing valuable insights and solutions in the field.
The article discusses the Internal Revenue Service's (IRS) use of information return penalties as a crucial tool to ensure the proper collection of tax revenue. As someone well-versed in tax regulations, I can attest to the significance of penalties in enhancing voluntary compliance. Over the years, the penalties for not filing or furnishing required information returns have seen a substantial increase, underscoring the IRS's commitment to enforcement.
For the 2022 reporting period, specific forms such as 1095, 1098, 1099, and W-2 have maximum penalties of $280 per form for not timely filing or furnishing, with a potential penalty of $560 per form for both untimely filing and untimely furnishing. The article also outlines the general filing and furnishing requirements, emphasizing different deadlines for paper and electronic filing based on the form series and number.
The penalty criteria, as outlined in Section 6721 of the tax code, cover various failures related to information returns. These include failure to file, filing with missing/incorrect taxpayer identification numbers (TINs), untimely filing, filing on paper when electronic filing was required, filing in an incorrect format, or any combination of these.
The article introduces the IRS penalty notice, Notice 972CG, as the most common one, proposing penalties for late filings, incorrect media usage, and TIN issues. Disputing a Notice 972CG penalty involves making a reasonable cause argument, where the filer must demonstrate responsible behavior before and after the failure, along with significant mitigating factors or circ*mstances beyond their control.
The IRS considers events such as being a first-time filer or having a history of compliance as significant mitigating factors. Acting responsibly, according to the IRS, involves exercising the same degree of care that a reasonably prudent person or organization would use in determining filing obligations and handling account information.
The article concludes by offering assistance from Bennett Thrasher's Tax Controversy team, highlighting their extensive experience in responding to IRS information return penalty notices. The contact information for James Pickett, the Director of the practice, is provided for those seeking more information on Tax Controversy services.
