Sharp increases in the penalties for making mistakes in information reporting will kick in for returns and statements that are required to be filed after Dec. 31, 2015. The hikes are tucked in to the Trade Preferences Extension Act of 2015, enacted June 29.
Section 806 of the act, part of the portion that addresses offsets, amends Internal Revenue Code Sections 6721 and 6722 to increase the penalties. “This is a very worrisome development and one where Congress doesn't understand how awful this is going to be when ACA reporting is in full bloom, for example,” said Marianna Dyson, Chair, Employee Benefits Department at Miller & Chevalier, Washington, D.C.
How worrisome? Some of the penalties more than double. In general, the penalty for failing to file an information return on time and failure to include all of the information required on an information return will increase from $100 to $250. The cap on the penalties that can be imposed on a filer during any calendar year will double from $1.5 million to $3 million. Intentionally disregarding the requirement to file an information return, and filing incorrect information on purpose, is twice as costly under the act as well.
And these penalties apply not only to the information returns filed with the government — they also apply to each copy of an information return sent to recipients.
And it won’t take much for those penalties to be imposed. Mistakes that could invoke the punishment include reporting dollar amounts that are only slightly off — perhaps by as little as one penny — or failure of a payee's name and taxpayer identification number (TIN) to match, according to Michael Chittenden, Senior Associate, Miller & Chevalier.
The act does not repeal reductions in penalties when corrections are made within a specified time, but it increases these lower penalties as well. If a failure is corrected within 30 days after the filing date, the penalty will be $50; it had been $30. The total penalty that can be imposed in a calendar year when corrections are made during that 30 days is $500,000. If mistakes are corrected more than 30 days after the filing date but on or before Aug. 1, the penalty will be $100; it had been $60. The total penalty that can be imposed in a calendar year when corrections are made during that period is $1.5 million.
Section 806 of the act, part of the portion that addresses offsets, amends Internal Revenue Code Sections 6721 and 6722 to increase the penalties. “This is a very worrisome development and one where Congress doesn't understand how awful this is going to be when ACA reporting is in full bloom, for example,” said Marianna Dyson, Chair, Employee Benefits Department at Miller & Chevalier, Washington, D.C.
How worrisome? Some of the penalties more than double. In general, the penalty for failing to file an information return on time and failure to include all of the information required on an information return will increase from $100 to $250. The cap on the penalties that can be imposed on a filer during any calendar year will double from $1.5 million to $3 million. Intentionally disregarding the requirement to file an information return, and filing incorrect information on purpose, is twice as costly under the act as well.
And these penalties apply not only to the information returns filed with the government — they also apply to each copy of an information return sent to recipients.
And it won’t take much for those penalties to be imposed. Mistakes that could invoke the punishment include reporting dollar amounts that are only slightly off — perhaps by as little as one penny — or failure of a payee's name and taxpayer identification number (TIN) to match, according to Michael Chittenden, Senior Associate, Miller & Chevalier.
The act does not repeal reductions in penalties when corrections are made within a specified time, but it increases these lower penalties as well. If a failure is corrected within 30 days after the filing date, the penalty will be $50; it had been $30. The total penalty that can be imposed in a calendar year when corrections are made during that 30 days is $500,000. If mistakes are corrected more than 30 days after the filing date but on or before Aug. 1, the penalty will be $100; it had been $60. The total penalty that can be imposed in a calendar year when corrections are made during that period is $1.5 million.
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