General Instructions for Forms 1099, 1098, 5498, and W-2G (2005)

General Instructions for Forms 1099, 1098, 5498, and W-2G - Introductory Material

This is archived information that pertains only to the 2006 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

Table of Contents

Reminder

Electronic/Magnetic Media Filing. E-filers are reminded that using the FIRE system requires following the specifications contained in Pub. 1220. Also, the IRS does not provide a fill-in form option. See page GEN-5 for information on e-file.

Payee. Throughout these instructions the term “payee”
means any recipient of Forms 1099, 1098, 5498, or W-2G including borrowers, debtors, donors, insureds, participants, policyholders, students, transferors, and winners on
certain forms.

What's New

Hurricane Relief Provisions

For more information, see Pub. 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma.

Form 1099-C. Section 401 of the Katrina Emergency Tax Relief Act (KETRA) of 2005 excluded discharges of certain nonbusiness debts, such as mortgages, from income for individuals whose principal residence was in the Hurricane Katrina disaster area on August 25, 2005, and who suffered economic loss by reason of Hurricane Katrina. This relief applies to discharges made on or after August 25, 2005, and before January 1, 2007. However, KETRA did not change the reporting requirements under section 6050P and its regulations. These requirements apply without regard to whether the debtor is subject to tax on the discharged indebtedness.

Form 1099-MISC. Due to section 304 of KETRA, if you are a charitable organization, you may not be required to report on Form 1099-MISC reimbursements for the operating expenses of a volunteer's automobile used in providing relief related to Hurricane Katrina. This applies to reimbursements paid by charitable organizations for relief provided during the period beginning August 25, 2005, and ending December 31, 2006. See the Instructions for Form 1099-MISC for additional requirements.

Form 1099-PATR. Section 202 of KETRA added a pass-through credit, the employee retention credit for employers affected by Hurricane Katrina (Form 5884-A). The Gulf Opportunity Zone Act (GOZA) of 2005 codified this provision as new section 1400R and extended it, with modifications, to employers affected by Hurricanes Rita and Wilma.

Forms 1099-R and 5498. Section 101 of KETRA provides for tax-favored distributions from eligible retirement plans (Katrina distributions) made on or after August 25, 2005, and before January 1, 2007, to a qualified individual. Katrina distributions are not subject to the additional tax under section 72(t) and may be eligible for tax-free rollover treatment. Section 103 of KETRA increases the allowable plan loan amount and permits suspension of payments on outstanding loans on or after August 25, 2005, to qualified individuals. See Notice 2005-92 for information on reporting requirements for Katrina distributions, recontributions, and plan loans. Notice 2005-92 is on page 1165 of Internal Revenue Bulletin 2005-51 available at www.irs.gov/pub/irs-irbs/irb05-51.pdf. Also, for additional information on these provisions and similar recently enacted provisions under GOZA that apply to Hurricanes Rita and Wilma, see Pub. 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma.

Other Changes

See the specific form instructions for more information on the changes listed below.

Backup withholding. Certain payment card transactions made by a qualified payment card agent have been added to the list of payments exempt from backup withholding.

New Code section 6043A, Acquisitions and Mergers. New section 6043A was added by the American Jobs Creation Act (AJCA) of 2004, P.L. 108-357. At the time this product went to print, the IRS and Treasury were addressing issues relating to information reporting of these corporate transactions.

New Form 1098-C. The AJCA added section 170(f)(12) that requires reporting of charitable contributions of motor vehicles, boats, and airplanes after December 31, 2004. A donee organization must provide a written acknowledgment to the donor and file the same information with the Internal Revenue Service. Donees are advised to see Notice 2005-44 on page 1287 of Internal Revenue Bulletin 2005-25, and Notice 2006-1 on page 1 of Internal Revenue Bulletin 2006-4, that provide reporting procedures for 2005. Internal Revenue Bulletins are available on the IRS website at www.irs.gov.

Form 1099-C. Final regulations under section 6050P were issued during 2004 that address who is a lender of money for purposes of reporting cancellation of debt. The separate instructions have been revised to reflect this change.

Form 1099-CAP. Final regulations were issued under section 6043 that require information reporting by corporations if there is a change in control or capital structure. The rules and definitions under the final regulations are reflected in the instructions. See Treasury Decision 9230 on page 1198 of Internal Revenue Bulletin 2005-52 available at www.irs.gov/pub/irs-irbs/irb05-52.pdf.

Form 1099-DIV. For tax years beginning after December 31, 2004, the AJCA repealed provisions of the Internal Revenue Code that specifically excluded distributions from foreign personal holding companies and foreign investment companies from the definition of qualified dividends. The separate instructions have been revised to reflect this change.

Form 1099-G. New Box 5, ATAA Payments, has been added to the form to report payments to eligible individuals under the Demonstration Project for Alternative Trade Adjustment Assistance (ATAA) for Older Workers. Beginning in 2005, the program payments are to be reported on Form 1099-G, not on Form 1099-MISC as in previous years.

Forms 1099-INT and 1099-OID. The AJCA repealed Code sections 860H through 860L, special rules for FASITs, effective after December 31, 2004. However, the special rules continue to apply to FASITs in existence on October 22, 2004, to the extent that the regular interests issued by the FASIT before that date continue to remain outstanding in accordance with the original terms of issue. The separate instructions have been revised to reflect this change.

Form 1099-MISC. The following changes have been made.

New Boxes 15a, Section 409A Deferrals, and 15b, Section 409A Income, have been added to Form 1099-MISC. Code section 409A, added by the AJCA, provides that all amounts deferred under a nonqualified deferred compensation (NQDC) plan for all taxable years are includible in gross income unless certain requirements are satisfied. The reporting rules added to the separate instructions apply to nonemployees as well as employees. Section 409A generally is effective for amounts deferred in tax years beginning after December 31, 2004.
Added to the list of payments that are not required to be reported on Form 1099-MISC are certain payment card transactions.
Added to the list of payments exempt from backup withholding are certain payments made through a qualified payment card organization.

Form 1099-PATR. The following changes have been made.

Section 199(d)(3), added by the AJCA, and Notice 2005-14 provide special rules for cooperatives to pass through to their patrons receiving certain patronage dividends or certain qualified per-unit retain allocations from the cooperative a deduction equal to their portion of the cooperative's qualified production activity income (QPAI) that would be deductible by the cooperative and designated by the cooperative in a written notice mailed to its patrons during the payment period. Box 6 on Form 1099-PATR that previously was used to report pass-through credits is revised to report the deduction under section 199. The open box below boxes 8 and 9 is designated as box 10 and will be used to report any pass-through credits and deductions not reported in boxes 6, 7, or 8.
The AJCA also added two credits to the list of pass-through credits available to patrons for 2005: the credit for low sulfur diesel fuel production (Form 8896), and the small ethanol producer credit (Form 6478).
The Energy Tax Incentives Act of 2005 added two additional pass-through credits: the renewable electricity, refined coal, and Indian coal production credit (Form 8835) and the small agri-biodiesel producer credit (Form 8864).
The Energy Tax Incentives Act also added a new pass-through deduction: a deduction for capital costs for sulfur reduction incurred by small refiner cooperatives when complying with EPA regulations.

Form 1099-R. The following changes have been made:

Distribution codes 1, 2, and J have been further modified. See the Guide to Distribution Codes in the Specific Instructions for Form 1099-R.
Reporting and withholding rules on qualified employer
plans and deemed IRA distributions have been added to the instructions based on guidance issued in Regulations
section 1.408(q)-1.
Rules relating to reporting of automatic rollovers of certain mandatory (involuntary) distributions from qualified plans have been added to the instructions based on Notice 2005-5, 2005-3 I.R.B. 337.

Form 1099-SA. Medicare+Choice (M+C) MSAs have been replaced by Medicare Advantage (MA) MSAs each place it appears on Form 1099-SA and its separate instructions.

Items You Should Note

Photographs of Missing Children

The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in instructions on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST(1-800-843-5678) if you recognize a child.

Available Products

In addition to these general instructions, which contain general information concerning Forms 1099, 1098, 5498, and W-2G, we provide specific form instructions as separate products. Get the instructions you need for completing a specific form from the following list of separate instructions:

Instructions for Forms W-2G and 5754
Instructions for Form 1098
Instructions for Form 1098-C
Instructions for Forms 1098-E and 1098-T
Instructions for Forms 1099-A and 1099-C
Instructions for Form 1099-B
Instructions for Form 1099-CAP
Instructions for Form 1099-DIV
Instructions for Form 1099-G
Instructions for Form 1099-H
Instructions for Forms 1099-INT and 1099-OID
Instructions for Form 1099-LTC
Instructions for Form 1099-MISC
Instructions for Form 1099-PATR
Instructions for Form 1099-Q
Instructions for Forms 1099-R and 5498
Instructions for Form 1099-S
Instructions for Forms 1099-SA and 5498-SA
Instructions for Form 5498-ESA

If you prefer to have all the specific and general instructions in one booklet, the 2005 Instructions for Forms 1099, 1098, 5498, and W-2G is also available. See How To Get Forms and Publications on page GEN-3.

Reporting Backup Withholding on Forms 1099 and W-2G

If you backup withhold on a payment, you must file the appropriate Form 1099 or Form W-2G with the IRS and furnish a statement to the recipient to report the amount of the
payment and the amount withheld. This applies even though the amount of the payment may be below the normal threshold for filing Form 1099 or Form W-2G. See Backup Withholding on page GEN-3.

Form 945. Withholding Tax Return

Report backup withholding, voluntary withholding on certain government payments, and withholding from gambling winnings, pensions, annuities, IRAs, military retirement, and Indian gaming profits on Form 945, Annual Return of Withheld Federal Income Tax. Generally, file Form 945 for 2005 by January 31, 2006. For more information, including the deposit requirements for Form 945, see the separate Instructions for Form 945 and Circular E, Employer's Tax Guide (Pub. 15).

Any income tax withholding reported on the following forms must not be reported on Form 945:

Form W-2, Wage and Tax Statement, including withholding on distributions to plan participants from nonqualified plans, must be reported on Form 941, Employer's Quarterly Federal Tax Return.
Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, must be reported on Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons.

Pub. 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, has more information on Form 1042 reporting, partnership withholding on effectively connected income, and dispositions of U.S. real property interests by a foreign person.

Use Form 1096 To Send Forms to the IRS

You must send Copies A of all paper Forms 1099, 1098, 5498, and W-2G to the IRS with Form 1096, Annual Summary and Transmittal of U.S. Information Returns. Instructions for completing Form 1096 are contained on Form 1096. Also see part D on page GEN-8.

Substitute Statements to Recipients

If you are using a substitute form to furnish statements to recipients (generally Copy B), be sure your substitute statements comply with the rules in Pub. 1179, General Rules and Specifications for Substitute Forms 1096, 1098, 1099, 5498, W-2G, and 1042-S. Pub. 1179, which is revised annually, explains the requirements for format and content of substitute statements to recipients. If you are using a substitute form to furnish information to recipients, it must comply with the requirements in Pub. 1179.

All substitute statements to recipients must contain
the tax year, form number, and form name prominently displayed together in one area of the statement. For example, they could be shown in the upper right part of the statement.

Guide to Information Returns

See the chart on pages GEN-17 and GEN-18 for a brief summary of information return reporting rules.

Taxpayer Identification Number (TIN) Matching

TIN Matching allows a payer or authorized agent who is required to file Forms 1099-B, DIV, INT, MISC, OID, and/or PATR, which report income subject to backup withholding, to match TIN and name combinations with IRS records before submitting the forms to the IRS. TIN Matching is one of the e-services products that is offered, and is accessible through the IRS website. Go to www.irs.gov and search for “e-services.” It is anticipated that payers who validate the TIN and name combinations before filing information returns will receive fewer backup withholding (CP2100) “B” notices and penalty notices. E-services technical support is available by calling 1-866-255-0654, Monday through Friday, from 8:30 a.m. to 7:00 p.m., Eastern time.

Need Help?

Information Reporting Customer Service Site

If you have questions about reporting on Forms 1096, 1098, 1099, 5498, W-2, W-2G, and W-3, you may call a toll-free number, 1-866-455-7438. You may still use the original telephone number, 304-263-8700 (not toll free). For TTY/TDD equipment, call 304-267-3367 (not toll free). The call site can also be reached by email at mccirp@irs.gov. The hours of operation for the call site are Monday through Friday from 8:30 a.m. to 4:30 p.m., Eastern time.

Other tax-related matters. For other tax information related to business returns or accounts, call 1-800-829-4933.

If you have access to TTY/TDD equipment, call 1-800-829-4059 to ask tax account questions or to order forms and publications.

Internal Revenue Bulletin

The Internal Revenue Bulletin (IRB), published weekly, contains newly issued regulations, notices, announcements, legislation, court decisions, and other items of general interest. You may find this publication useful to keep you up to date with current developments. See How To Get Forms and Publications below.

Unresolved Tax Issues

If you have attempted to deal with an IRS problem unsuccessfully, you should contact the Taxpayer Advocate. The Taxpayer Advocate independently represents your interests and concerns within the IRS by protecting your rights and resolving problems that have not been fixed through normal channels.

While Taxpayer Advocates cannot change the tax law or make a technical decision, they can clear up problems that resulted from previous contacts and ensure that your case is given a complete and impartial review.

Your assigned personal advocate will listen to your point of view and will work with you to address your concerns. You can expect the advocate to provide:

A “fresh look” at a new or on-going problem.
Timely acknowledgement.
The name and phone number of the individual assigned to your case.
Updates on progress.
Timeframes for action.
Speedy resolution.
Courteous service.

When contacting the Taxpayer Advocate, you should provide the following information:

Your name, address, and employer identification number (EIN).
The name and telephone number of an authorized contact person and the hours he or she can be reached.
The type of tax return and year(s).
A detailed description of the problem.
Previous attempts to solve the problem and the office that had been contacted.
A description of the hardship you are facing and supporting documentation (if applicable).

You may contact a Taxpayer Advocate by calling a toll-free number, 1-877-777-4778. Persons who have access to TTY/TDD equipment may call 1-800-829-4059 and ask for Taxpayer Advocate assistance. If you prefer, you may call, write, or fax the Taxpayer Advocate office for your area. See Pub. 1546, The Taxpayer Advocate Service - How to Get Help With Unresolved Tax Problems, for a list of addresses and fax numbers. You may visit the website at www.irs.gov/advocate.

How To Get Forms and Publications

Because the IRS processes paper forms by machine (optical character recognition equipment), you cannot file with the IRS Form 1096 or Copy A of Forms 1098, 1099, or 5498 that you print from the IRS website or the CD-ROM.

Personal computer. You can access the IRS website 24 hours a day, 7 days a week, at www.irs.gov to:

Access commercial tax preparation and e-file services.
Download forms, instructions, and publications.
Order IRS products online.
Research your tax question online.
Search publications online by topic or keyword.
Sign up to receive local and national tax news by email.

CD-ROM. Order Pub. 1796, IRS Federal Tax Products CD-ROM, and get:

Current year forms, instructions, and publications.
Prior year forms, instructions, and publications.
Frequently requested tax forms that may be filled in electronically, printed out for submission, and saved for recordkeeping.
The Internal Revenue Bulletin.

Buy the CD-ROM on the Internet at www.irs.gov/cdorders from the National Technical Information Service (NTIS) for $25 (no handling fee) or call 1-877-CDFORMS (1-877-233-6767) toll free to buy the CD-ROM for $25 (plus a $5 handling fee).

By phone and in person. You can order forms and publications 24 hours a day, 7 days a week, by calling 1-800-TAX-FORM (1-800-829-3676). You can pick up some of the most requested forms and publications at many IRS offices, post offices, and libraries.

Backup Withholding

Interest, dividends, rents, royalties, commissions, nonemployee compensation, and certain other payments (including broker and barter exchange transactions, reportable gross proceeds paid to attorneys, and certain payments made by fishing boat operators) may be subject to backup withholding at a 28% rate. To be subject to backup withholding, a payment must be a reportable interest or dividend payment under section 6049(a), 6042(a), or 6044 (if the patronage dividend is paid in money or qualified check), or an “other” reportable payment under section 6041, 6041A(a), 6045, 6050A, or 6050N. If the payment is one of these reportable payments, backup withholding will apply if:

The payee fails to furnish his or her taxpayer identification number (TIN) to you,
For interest, dividend, and broker and barter exchange accounts opened or instruments acquired after 1983, the payee fails to certify, under penalties of perjury, that the TIN provided is correct,
The IRS notifies you to impose backup withholding because the payee furnished an incorrect TIN (“B” notice),
For interest and dividend accounts or instruments, you are notified that the payee is subject to backup withholding (under section 3406(a)(1)(C), “C” notice), or
For interest and dividend accounts opened or instruments acquired after 1983, the payee fails to certify to you, under penalties of perjury, that he or she is not subject to backup withholding under 4 above.

Except as explained in 2 above, reportable “other” payments are subject to backup withholding only if 1 or 3 above applies.

Some payees are exempt from backup withholding. For a list of exempt payees and other information, see Form W-9, Request for Taxpayer Identification Number and Certification, and the separate Instructions for the Requester of Form W-9.

Examples of payments to which backup withholding does not apply include but are not limited to:

Wages.
Distributions from a pension, annuity, profit-sharing or stock bonus plan, any IRA, an owner-employee plan, or other deferred compensation plan.
Distributions from a medical or health savings account and long-term care benefits.
Certain surrenders of life insurance contracts.
Distribution from qualified tuition programs or Coverdell ESAs.
Gambling winnings if regular gambling winnings withholding is required under section 3402(q). However, if regular gambling winnings withholding is not required under section 3402(q), backup withholding applies if the payee fails to furnish a TIN.
Real estate transactions reportable under
section 6045(e).
Cancelled debts reportable under section 6050P.
Fish purchases for cash reportable under
section 6050R.
Certain payment card transactions if the payment is made on or after January 1, 2005, by a qualified payment card agent (as described in Rev. Proc. 2004-42 and Regulations section 31.3406(g)-1(f) and if the requirements under Regulations section 31.3406(g)-1(f) are met. Rev. Proc. 2004-42 is available on page 121 of Internal Revenue Bulletin 2004-31 at www.irs.gov/pub/irs-irbs/irb04-31.pdf.

When to apply backup withholding. Generally, the period for which the 28% should be withheld is as follows:

1. Failure to furnish TIN in the manner required. Withhold on payments made until the TIN is furnished in the manner required. Special backup withholding rules may apply if the payee has applied for a TIN. The payee may certify to this on Form W-9 by noting “Applied For” in the TIN block and by signing the form. This form then becomes an “awaiting-TIN” certificate, and the payee has 60 days to obtain a TIN and furnish it to you. If you do not receive a TIN from the payee within 60 days and you have not already begun backup withholding, begin backup withholding and continue until the TIN is provided.

The 60-day exemption from backup withholding applies only to interest and dividend payments and certain payments made with respect to readily tradable instruments. Therefore, any other payment, such as nonemployee compensation, is subject to backup withholding even if the payee has applied for and is awaiting a TIN. For information about whether backup withholding applies during the 60-day period, see Regulations section 31.3406(g)-3.

2. Notice from the IRS that payee's TIN is incorrect (“B” notice). You may choose to withhold on any reportable payment made to the account(s) subject to backup withholding after receipt of the “B” notice, but you must withhold on any reportable payment made to the account more than 30 business days after you received the “B” notice. Stop withholding within 30 days after you receive a certified Form W-9 (or other form that requires the payee to certify under penalty of perjury).

The IRS will furnish a notice to you, and you are required to promptly furnish a copy of such notice, or an acceptable substitute, to the payee. For further information, see Regulations section 31.3406(d)-5 and Rev. Proc. 93-37, 1993-2 C.B. 477.

If you receive two incorrect TIN notices within 3 years for the same account, follow the procedures in Regulations section 31.3406(d)-5(g) and Rev. Proc. 93-37.

3. Notice from the IRS that payee is subject to backup withholding due to notified payee underreporting (“C” notice). You may choose to withhold on any reportable payment made to the account(s) subject to backup withholding after receipt of the “C” notice, but you must withhold on any reportable payment made to the account more than 30 business days after you receive the “C” notice. The IRS will notify you in writing when to stop withholding, or the payee may furnish you a written certification from the IRS stating when the withholding should stop. In most cases, the stop date will be January 1 of the year following the year of the notice.

You must notify the payee when withholding under this procedure starts. For further information, see Regulations section 31.3406(c)-1(d).

4. Payee failure to certify that he or she is not subject to backup withholding. Withhold on reportable interest and dividends until the certification has been received.

For exceptions to these general timing rules, see
section 3406(e).

For special rules on backup withholding on gambling winnings, see the separate Instructions for Forms W-2G and 5754.

Reporting backup withholding. Report backup withholding on Form 945. For more information, see the Instructions for Form 945. Also, report backup withholding and the amount of the payment on Forms W-2G, 1099-B, DIV, G, INT, MISC, OID, or PATR even if the amount of the payment is less than the amount for which an information return is normally required.

Additional information. For more information about backup withholding, see Pub. 1281, Backup Withholding for Missing and Incorrect Name/TIN(s) (Including Instructions for Reading Tape Cartridges).

Penalties

The following penalties generally apply to the person required to file information returns. The penalties apply to paper filers as well as to electronic/magnetic media filers.

Failure To File Correct Information Returns by the Due Date (Section 6721)

If you fail to file a correct information return by the due date and you cannot show reasonable cause, you may be subject to a penalty. The penalty applies if you fail to file timely, you fail to include all information required to be shown on a return, or you include incorrect information on a return. The penalty also applies if you file on paper when you were required to file on magnetic media, you report an incorrect TIN or fail to report a TIN, or you fail to file paper forms that are machine readable.

The amount of the penalty is based on when you file the correct information return. The penalty is:

$15 per information return if you correctly file within 30 days (by March 30 if the due date is February 28); maximum
penalty $75,000 per year ($25,000 for small businesses, defined on page GEN-5).
$30 per information return if you correctly file more than 30 days after the due date but by August 1; maximum penalty $150,000 per year ($50,000 for small businesses).
$50 per information return if you file after August 1 or you do not file required information returns; maximum penalty $250,000 per year ($100,000 for small businesses).

If you do not file corrections and you do not meet any of the exceptions to the penalty described on page GEN-5, the penalty is $50 per information return.

Small businesses—lower maximum penalties. You are a small business if your average annual gross receipts for the 3 most recent tax years (or for the period you were in existence, if shorter) ending before the calendar year in which the information returns were due are $5 million or less.

Exceptions to the penalty. The following are exceptions to the failure to file penalty:

The penalty will not apply to any failure that you can show was due to reasonable cause and not to willful neglect. In general, you must be able to show that your failure was due to an event beyond your control or due to significant mitigating factors. You must also be able to show that you acted in a responsible manner and took steps to avoid the failure.
An inconsequential error or omission is not considered a failure to include correct information. An inconsequential error or omission does not prevent or hinder the IRS from processing the return, from correlating the information required to be shown on the return with the information shown on the payee's tax return, or from otherwise putting the return to its intended use. Errors and omissions that are never inconsequential are those related to (a) a TIN, (b) a payee's surname, and (c) any money amount.
De minimus rule for corrections. Even though you cannot show reasonable cause, the penalty for failure to file correct information returns will not apply to a certain number of returns if you:
1. Filed those information returns,
2. Either failed to include all the information required on a return or included incorrect information, and
3. Filed corrections by August 1.

If you meet all the conditions in a, b, and c above, the penalty for filing incorrect returns (but not for filing late) will not apply to the greater of 10 information returns or ½ of 1% of the total number of information returns you are required to file for the calendar year.

Intentional disregard of filing requirements. If any failure to file a correct information return is due to intentional disregard of the filing or correct information requirements, the penalty is at least $100 per information return with no maximum penalty.

Failure To Furnish Correct Payee Statements (Section 6722)

If you fail to provide correct payee statements and you cannot show reasonable cause, you may be subject to a penalty. The penalty applies if you fail to provide the statement by January 31 (see part H on page GEN-10), you fail to include all information required to be shown on the statement, or you include incorrect information on the statement. “Payee statement” has the same meaning as “statement to recipient” as used in part H on page GEN-10.

The penalty is $50 per statement, no matter when the correct statement is furnished, with a maximum of $100,000 per year. The penalty is not reduced for furnishing a correct statement by August 1.

Exception. An inconsequential error or omission is not considered a failure to include correct information. An inconsequential error or omission cannot reasonably be expected to prevent or hinder the payee from timely receiving correct information and reporting it on his or her income tax return or from otherwise putting the statement to its intended use. Errors and omissions that are never inconsequential are those relating to (a) a dollar amount, (b) a significant item in a payee's address, (c) the appropriate form for the information provided (that is, whether the form is an acceptable substitute for the official IRS form), and (d) whether the statement was furnished in person or by “statement mailing,” when required.

Intentional disregard of payee statement requirements. If any failure to provide a correct payee statement is due to intentional disregard of the requirements to furnish a correct payee statement, the penalty is at least $100 per payee statement with no maximum penalty.

Forms 1099-Q, 1099-SA, 5498, 5498-ESA, and 5498-SA

The penalties under sections 6721 and 6722 do not apply to:

Forms	Filed Under Code Section
1099-SA and 5498-SA	220(h) and 223(h)
5498	408(i) and 408(l)
5498-ESA	530(h)
1099-Q	529(d) and 530(h)

The penalty for failure to timely file Forms 1099-SA, 5498-SA, 5498, 5498-ESA, or 1099-Q is $50 per return with no maximum, unless the failure is due to reasonable cause. See section 6693.

Fraudulent Acknowledgments With Respect to Donations of Motor Vehicles, Boats, and Airplanes (Section 6720)

If you are required under section 170(f)(12)(A) to furnish a contemporaneous written acknowledgment to a donor and you knowingly furnish a false or fraudulent Form 1098-C, or knowingly fail to furnish a Form 1098-C within the applicable 30-day period, you may be subject to a penalty. See the 2005 Instructions for Form 1098-C for more detailed information.

Civil Damages for Fraudulent Filing of Information Returns

If you willfully file a fraudulent information return for payments you claim you made to another person, that person may be able to sue you for damages. You may have to pay $5,000 or more.

Electronic/Magnetic Media Reporting

Magnetic media reporting may be required for filing all information returns discussed in this publication (see Who must file on magnetic media below). Acceptable forms of magnetic media are IBM 3480, 3490, 3490E, 3590, or 3590E tape cartridges; and 3½-inch diskettes.

For returns filed after December 31, 2006, Enterprise Computing Center—Martinsburg (ECC-MTB) will no longer accept 3½-inch diskettes for filing information returns.

Pub. 1220, Specifications for Filing Forms 1098, 1099, 5498, and W-2G Electronically or Magnetically, is the revenue procedure for reporting electronically or magnetically. Pub. 1220 is available as Revenue Procedure 2005-49 on page 165 of Internal Revenue Bulletin 2005-31 at www.gov/pub/irs-irbs/irb05-31. Different types of payments, such as interest, dividends, and rents, may be reported on the same tape or other submission.

You can file electronically through the Filing Information Returns Electronically System (FIRE System); however, you must have the software that can produce a file in the proper format according to Pub. 1220. The FIRE system does not provide a fill-in form option. The FIRE system operates 24 hours a day, 7 days a week. You may access the FIRE System via the Internet at http://FIRE.IRS.gov. See Pub. 1220 for more information.

Due dates. File Forms 1098, 1099, or W-2G on magnetic media by February 28, 2006. If you file electronically, you may file by March 31, 2006. File Form 5498, 5498-ESA, or 5498-SA by May 31, 2006. See part H on page GEN-10 about providing Forms 1098, 1099, 5498, and W-2G or statements to recipients.

Extension of time to file. For information about requesting an extension of time to file, see Extension on page GEN-8.

If you file electronically or on magnetic media, do not file the same returns on paper.

Who must file on magnetic media. If you are required to file 250 or more information returns, you must file on magnetic media. The 250-or-more requirement applies separately to each type of form. For example, if you must file 500 Forms 1098 and 100 Forms 1099-A, you must file Forms 1098 on magnetic media, but you are not required to file Forms 1099-A on magnetic media.

The magnetic media filing requirement does not apply if you apply for and receive a hardship waiver. See How to request a waiver from filing on magnetic media below.

The IRS encourages you to file on magnetic media or electronically even though you are filing fewer than 250 returns.

Filing requirement applies separately to originals and corrections. The magnetic media filing requirements apply separately to original returns and corrected returns. Originals and corrections are not aggregated to determine whether you are required to file on magnetic media. For example, if you file 400 Forms 1098 on magnetic media and you are making 75 corrections, your corrections can be filed on paper because the number of corrections for Form 1098 is less than the 250 filing requirement. However, if you were filing 250 or more Form 1098 corrections, they would have to be filed on magnetic media.

Reporting incorrect payer name and/or TIN. If a payer discovers an error in reporting the payer name and/or TIN, write a letter to IRS/ECC—MTB (see below) containing the following information:

Name and address of the payer,
Type of error (including the incorrect payer name/TIN that was reported),
Tax year,
Payer TIN,
Transmitter Control Code (TCC), if applicable,
Type of return,
Number of payees, and
Filing method (paper, electronic, or magnetic media).

Send the letter to Enterprise Computing Center—Martinsburg, Information Reporting Program, 240 Murall Drive, Kearneysville, WV 25430. Also see Pub. 1220, Part A,
Section 11.

If a payer realizes duplicate reporting or a large percentage of incorrect information has been filed, contact the information reporting customer service site at 1-866-455-7438 for further instructions.

How to get approval to file on magnetic media. File Form 4419, Application for Filing Information Returns Electronically/Magnetically, at least 30 days before the due date of the returns. File only one Form 4419 for all types of returns that will be filed on magnetic media. Once you have received approval, you need not reapply each year. The IRS will provide a written reply to the applicant and further instructions at the time of approval, usually within 30 days. A magnetic media reporting package, which includes all the necessary transmittals and instructions, will be mailed to all approved filers.

How to request a waiver from filing on magnetic media. To receive a waiver from the required filing of information returns on magnetic media, submit Form 8508, Request for Waiver From Filing Information Returns Magnetically, at least 45 days before the due date of the returns. You cannot apply for a waiver for more than 1 tax year at a time. If you need a waiver for more than 1 tax year, you must reapply at the appropriate time each year.

If a waiver for original returns is approved, any corrections for the same types of returns will be covered under the waiver. However, if you submit original returns on magnetic media but you want to submit your corrections on paper, a waiver must be approved for the corrections if you must file 250 or more corrections.

If you receive an approved waiver, do not send a copy of it to the service center where you file your paper returns. Keep the waiver for your records only.

Single application. Submit both Forms 4419 and 8508 to apply for approval for filing returns on magnetic media, and if the approval is not granted, to apply for a waiver from the magnetic media requirement.

Penalty. If you are required to file on magnetic media but fail to do so, and you do not have an approved waiver, you may be subject to a penalty of $50 per return for failure to file on magnetic media unless you establish reasonable cause. However, you can file up to 250 returns on paper; those returns will not be subject to a penalty for failure to file on magnetic media.

The penalty applies separately to original returns and corrected returns. See Filing requirement applies separately to originals and corrections above.

Paper Document Reporting

If you are required to file 250 or more information returns, see Electronic/Magnetic Media Reporting on page GEN-5.

Common errors. Be sure to check your returns to prevent the following common errors:

Duplicate filing. Do not send the same information to the IRS more than once. Also see Multiple filings below.
Filer's name, address, and TIN are not the same on Form 1096 and the attached Forms 1099, 1098, 5498, or W-2G.
Decimal point to show dollars and cents omitted. For example, 1230.00 is correct, not 1230.
Two or more types of returns submitted with one Form 1096 (for example, Forms 1099-INT and 1099-MISC with one Form 1096). You must submit a separate Form 1096 with each type of return.

Multiple filings. If, after you file Forms 1099, 1098, 5498, or W-2G, you discover additional forms that are required to be filed, file these forms with a new Form 1096. Do not include copies or information from previously filed returns.

Required format. Because paper forms are scanned, all Forms 1096 and Copies A of Forms 1098, 1099, and 5498 must be prepared in accordance with the following instructions. If these instructions are not followed, you may be subject to a penalty of $50 for each incorrectly filed document.

Do not cut or separate Copies A of the forms that are printed two or three to a sheet (except Form W-2G). Forms 1098, 1099, and 5498 are printed two or three to an 8 x 11 inch sheet. Form 1096 is printed one to an 8 x 11 inch sheet. These forms must be submitted to the IRS on the 8 x 11 inch sheet. If at least one form on the page is correctly completed, you must submit the entire page. Forms W-2G may be separated and submitted as single forms. Send the forms to the IRS in a flat mailing (not folded).
No photocopies of any forms are acceptable. See How To Get Forms and Publications on page GEN-3.
Do not staple, tear, or tape any of these forms. It will interfere with the IRS's ability to scan the documents.
Pinfeed holes on the form are not acceptable. Pinfeed strips outside the 8 x 11 inch area must be removed before submission, without tearing or ripping the form. Substitute forms prepared in continuous or strip form must be burst and stripped to conform to the size specified for a single sheet (8 x 11 inches) before they are filed with the IRS.
Do not change the title of any box on any form. Do not use a form to report information that is not properly reportable on that form. If you are unsure of where to report the data, call the information reporting call site at 866-455-7438 (toll free).
Report information only in the appropriate boxes provided on the forms. Make only one entry in each box unless otherwise indicated in the form's specific instructions.
Do not submit any copy other than Copy A to the IRS.
Do not use prior year forms unless you are reporting prior year information; do not use subsequent year forms for the current year. Because forms are scanned, you must use the current year form to report current year information.
Use the official forms or substitute forms that meet the specifications in Pub. 1179. If you submit substitute forms that do not meet the current specifications and that are not scannable, you may be subject to a penalty of $50 for each return for improper format.
Do not use dollar signs ($) (they are preprinted on the forms), ampersands (&), asterisks (*), commas (,), or other special characters in money amount boxes.
Do not use apostrophes ('), asterisks (*), or other special characters on the payee name line.

Suggested format. Below are suggestions that will allow the IRS to process the submitted forms in the most economical manner:

Although handwritten forms are acceptable, the IRS prefers that you type or machine print data entries using 10 pitch (pica) or 12 pitch (elite) black type. Use block print, not script characters. Insert data in the middle of the blocks well separated from other printing and guidelines, and take other measures to guarantee a dark black, clear, sharp image.
Do not enter 0 (zero) or “None” in money amount boxes when no entry is required. Leave the boxes blank unless the instructions specifically require that you enter a 0 (zero). For example, in some cases, you must enter 0 (zero) to make corrections. See Corrected Returns on Paper Forms on page GEN-12.
Do not enter number signs (#); for example, enter RT 2, not Rt. #2.