February 21, 1991
IRS Announces Penalty Rules for
Delinquent or Incorrect Information Returns
The Internal Revenue Service has issued temporary regulations
relating to the imposition of penalties for failure to comply with
information reporting requirements. These regulations reflect
changes to the law made by the Omnibus Budget Reconciliation Act of
1989 and appear in today's Federal Register.
Payers of interest, dividends, and certain other payments
generally are required to file information returns on Form 1099 by
February 28 of the year after the payments are made. The new rules
provide a $50 penalty for each failure to file a correct document.
In an effort to encourage filers to provide timely and correct
information to the IRS, this penalty is reduced to $15 if the
failure is corrected within 30 days of the required filing date and
to $30 if a failure is corrected after the end of the 30-day period
but on or before August 1 of the year in which the return is
required to be filed.
Under the new rules, no penalty will be imposed on a de minimis
number of errors -- the greater of 10 or one-half of one percent of
all returns required to be filed -- if the filer corrects those
errors by August 1. The regulations also provide that penalties
will not be imposed for minor errors and omissions that do not
hinder the processing of the return.
Also, penalties imposed for failures to timely file correct
information returns will be waived if the failures have reasonable
cause and are not due to willful neglect. Reasonable cause is
present if the filer acted responsibly and establishes there are
significant mitigating factors for the failure or the failure arose
from events beyond the filer's control.
The regulations generally are effective for information returns
due after Dec. 31, 1989. However, special transitional rules are
provided under which penalties will be waived if payers complied
with rules applicable under prior law.
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