Information Reporting Penalties Doubling Under New Law
Public Law 114-27, signed on June 29 by President Obama, includes a little-publicized provision that dramatically increases several information reporting penalties. These penalties apply to errors on numerous types of information returns for mistakes that businesses often inadvertently make.
The new law increases the penalty from $100 per failure to $250 per failure under section 6721, which imposes a penalty for each incorrect information return filed with the IRS, and section 6722. So, a single error on a 2015 Form 1099 may result in a $500 penalty unless the taxpayer is granted abatement on reasonable cause or other grounds. The smaller penalties for errors that are corrected within 30 days or before August 1 are also increased.
This new law also doubles the annual maximum penalty that can be imposed on a filer under both sections 6721 and 6722. Under the new law, the maximum will increase from $1.5 million to $3 million for each penalty, or a total of $6 million total. Similar increases were made to the lower annual limits applicable to small businesses and for errors corrected within 30 days or before August 1.
The new penalty amounts apply to information returns filed after December 31, 2015 and are in addition to changes made in the Tax Increase Prevention Act of 2014 that indexes the penalty amounts for inflation.