Banking & Finance and Government

Small business IRS fine goes up to $1 million

Incorrectly filing tax forms could prove more costly.

January 1, 2016
TAGS IRS / Taxes
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The IRS can now fine a small business up to $1 million for failure to file correct tax information.

This summer, the IRS increased penalties for failure to file correct information returns and failure to provide correct payee statements for information returns on 1099, W-2 and 1095 filings filed after Dec. 31, 2015. The maximum penalties increased from $500,000 to $1 million for small businesses.

“The Trade Preferences Extension Act of 2015 (HR 1295) contained various revenue raisers, including the increases in the failure-to-file penalties under Sections 6721 and 6722. This was passed on June 29, 2015. It was mainly added to support the filing of new Affordable Care Act 1095 forms,” said Kyle Janssens, senior brand manager at Greatland Corp., a company that provides W-2 and 1099 services and has an office in Grand Rapids.

“These increases serve to further remind employers of the importance of preparing now for this upcoming obligation by putting procedures in place and ensuring they have the infrastructure to capture and provide the required information. For small businesses, the maximum penalty increased from $500,000 to $1 million. The changes are effective for information returns filed after Dec. 31, 2015. A small business (for penalty purposes) is defined as a business with annual gross receipts of $5 million or less.”

Businesses must first understand what their requirements are and, after that, they must start gathering all the information necessary and how they will report it to the IRS and employees, Janssens said.

The penalties under Section 6721 are revised in the following manner:

  • $50 per information return if you correctly file within 30 days (by March 30 if the due date is Feb. 28); maximum penalty $500,000 per year ($175,000 for small businesses).
  • $100 per information return if you correctly file more than 30 days after the due date but by Aug. 1; maximum penalty$1,500,000 per year ($500,000 for small businesses).
  • $250 per information return if you file after Aug. 1, or you do not file required information returns; maximum penalty $3,000,000 per year ($1,000,000 for small businesses).

“There is a one-year rule that penalties for 1095 (ACA) reporting will not be assessed if the business made a good-faith effort to comply with new requirements. This does not mean businesses can’t file; it means they won’t be punished for incorrect or incomplete information. Failure to comply will be punished. W-2 and 1099 filing penalties are assessed every year for noncompliance or incorrect filings by businesses,” Janssens said.

“The first year is about compliance with the requirement, not about accuracy. They want businesses to file the forms and comply with the mandate. For W-2 and 1099 filing, it’s about filing, filing correctly and filing on time.”

Any small business that doesn’t understand the new requirements should seek legal counsel, he said.

“Businesses work hard year-round for their money, and we at Greatland are here to help them avoid preventable penalties and fines,” said Bob Nault, Greatland’s CEO. “Our experts and software products are ready to help businesses meet deadlines, answer questions, file data accurately and stay current with year-over-year changes.”

Here are the major changes in the new requirements that began Jan. 1:

Failure to File Correct Information Returns by the Due Date

  • $50 per information return if you correctly file within 30 days; maximum penalty $500,000 per year ($175,000 for small businesses).
  • $100 per information return if you correctly file more than 30 days after the due date but by Aug. 1; maximum penalty $1.5 million ($500,000 for small businesses).
  • $250 per information return if you file after Aug. 1, or you do not file required information returns; maximum penalty $3 million per year ($1 million for small businesses).

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 $500 per information return with no maximum penalty.

Failure to Furnish Correct Payee Statements

  • $50 per information return if you correctly file within 30 days after the required filing date; maximum penalty $500,000 per year ($175,000 for small businesses).
  • $100 per information return if you correctly file more than 30 days after the due date but by Aug. 1; maximum penalty $1.5 million ($500,000 for small businesses).
  • $250 per statement if you file after Aug.1, or you do not file required information returns; maximum penalty $3 million per year ($1 million for small businesses).

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 $500 per information return with no maximum penalty.

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