Report Right or It’ll Cost You (double)
Reporting requirements for business just keep growing, and so do the penalties for doing it wrong. New this year and just in time for the annual reporting season (makes it sound almost fun, huh?) are new forms to file and an increase in penalties for not making an effort to get the information correct and into the hands of the proper recipient. Failure to file by the due date can cost businesses $250 per item, up to $3,000,000 in penalties ($1,000,000 for small businesses). Add to that the warning about intentionally not filing or having an “intentional disregard of the requirements to furnish a correct payee statement”, which carries a penalty of at least $500 per payee statement and has no maximum penalty. Clearly, the cost of making sure the information is correct and filed in a timely manner is far less than the cost of not getting it done – or done right.
Growing problems around wage and revenue reporting have caused the IRS to pursue a variety of measures over the years to try to improve information reporting. The Affordable Care Act has also had quite an impact on wage and benefit reporting, increasing reporting requirements substantially. From the introduction of health plan reporting on W2s to the new mandatory forms 1095-C and 1094-C (for applicable large employers), businesses of all sizes are feeling the pressure.
February 2016 marks the date when employers and healthcare providers are required to file those shiny new IRS information returns regarding employer-provided healthcare coverage, providing a copy of the return to each employee much like a W2. The information would then enable the IRS to enforce rules established under the Affordable Care Act by revealing whether an individual might be eligible for a premium tax credit, or if an employer may be subject to non-compliance penalties. Penalties for failing to comply essentially double in 2016. And the IRS suggests that a “good faith effort” standard will be applied to information reporting, offering no relief for employers that fail to make the effort to file timely and correctly.
It wasn’t very long ago that 1099 filing requirements expanded substantially, forcing businesses to get far more detailed in their production of information to the IRS and to payment recipients. While this filing requirement impacted businesses both large and small, most lived through it (with the help of their trusted accounting professional!) and were able to comply. That effort informed the IRS on a wide variety of business payments and expenses not previously tracked, in particular payments made for services and non-employee compensation.
The increasing scrutiny of wage and earning information may also help in efforts to curtail tax refund fraud. Identity thieves use stolen (or borrowed) social security numbers to file false tax returns early in the year. Unfortunately, with the IRS motto of “pay first, prove later” the cross checking won’t likely be done until after the refund check has been sent. Once the task is performed, however, the taxpayer could end up getting a letter from the IRS stating that more than one tax return was filed using the social security number, they owe for a tax year for which they did not file a return, or the IRS indicates that wages were reported from an employer the taxpayer doesn’t know.
The IRS expects tax refund fraud to top $21 billion by 2016, which is an increase of 223% from 2013 numbers. Tax refund fraud costs every taxpayer. No wonder the IRS is getting tougher with the penalties for not filing information returns accurately or on time.
Following is the text from the IRS, which outlines the “Increase in Penalties for Failure to File Correct Information Returns and to Provide Correct Payee Statements — 31-JUL-2015
L. 114-27, section 806, increased penalties for failure to file correct information returns and provide correct payee statements for information returns required to be filed after December 31, 2015.
Penalties are discussed in Section O in the General Instructions for Certain Information Returns. The penalties in the bulleted list under “Failure To File Correct Information Returns by the Due Date (Section 6721)” are revised as follows.
- $50 per information return if you correctly file within 30 days (by March 30 if the due date is February 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 August 1; maximum penalty $1,500,000 per year ($500,000 for small businesses).
- $250 per information return if you file after August 1 or you do not file required information returns; maximum penalty $3,000,000 per year ($1,000,000 for small businesses).