Rule2023-27283
De Minimis Error Safe Harbor Exceptions to Penalties for Failure To File Correct Information Returns or Furnish Correct Payee Statements
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
December 19, 2023
Effective
December 19, 2023
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document contains final regulations implementing statutory safe harbor rules that protect persons required to file information returns or to furnish payee statements from penalties under the Internal Revenue Code (Code) for failure to file correct information returns or furnish correct payee statements. The statutory safe harbor rules treat information returns and payee statements with erroneous dollar amounts as correct returns or statements for certain penalty purposes if the errors are de minimis in dollar amount. The final regulations also prescribe the time and manner in which a payee may elect not to have the statutory safe harbor rules apply. In addition, these final regulations update dollar amounts, definitions, and references in existing regulations relating to information return and payee statement penalties to reflect various statutory amendments to the Code that are not accounted for in the existing regulations. Finally, the final regulations provide rules relating to the reporting of basis of securities by brokers as this reporting relates to the de minimis error safe harbor rules. The final regulations affect persons required to either file information returns or to furnish payee statements (filers) and the recipients of payee statements (payees).
Full Text
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<title>Federal Register, Volume 88 Issue 242 (Tuesday, December 19, 2023)</title>
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[Federal Register Volume 88, Number 242 (Tuesday, December 19, 2023)]
[Rules and Regulations]
[Pages 87696-87714]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-27283]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 301
[TD 9984]
RIN 1545-BN59
De Minimis Error Safe Harbor Exceptions to Penalties for Failure
To File Correct Information Returns or Furnish Correct Payee Statements
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations implementing
statutory safe harbor rules that protect persons required to file
information returns or to furnish payee statements from penalties under
the Internal Revenue Code (Code) for failure to file correct
information returns or furnish correct payee statements. The statutory
safe harbor rules treat information returns and payee statements with
erroneous dollar amounts as correct returns or statements for certain
penalty purposes if the errors are de minimis in dollar amount. The
final regulations also prescribe the time and manner in which a payee
may elect not to have the statutory safe harbor rules apply. In
addition, these final regulations update dollar amounts, definitions,
and references in existing regulations relating to information return
and payee statement penalties to reflect various statutory amendments
to the Code that are not accounted for in the existing regulations.
Finally, the final regulations provide rules relating to the reporting
of basis of securities by brokers as this reporting relates to the de
minimis error safe harbor rules. The final regulations affect persons
required to either file information returns or to furnish payee
statements (filers) and the recipients of payee statements (payees).
DATES:
Effective date: These regulations are effective on December 19,
2023.
Applicability dates: For dates of applicability, see Sec. Sec.
1.6045-1(d)(6)(ix) and (q), 301.6721-1(j), 301.6722-1(g), and 301.6724-
1(o).
FOR FURTHER INFORMATION CONTACT: Alexander Wu at (202) 317-6845 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains final regulations to amend the Income Tax
Regulations (26 CFR part 1) under section 6045(g) of the Code and the
Procedure and Administration Regulations (26 CFR part 301) under
sections 6721, 6722, and 6724 of the Code. In particular, the final
regulations implement two statutory safe harbors that except certain de
minimis errors in reporting correct dollar amounts on information
returns and payee statements from the penalty for failure to file
correct information returns imposed by section 6721 and the penalty for
failure to furnish correct payee statements imposed by section 6722 (de
minimis error safe harbor exceptions). The de minimis error safe harbor
exceptions are found in sections 6721(c)(3) and 6722(c)(3), which were
added to the Code by section 202 of the Protecting Americans from Tax
Hikes Act of 2015 (PATH Act), enacted as division Q of the Consolidated
Appropriations Act, 2016, Public Law 114-113, 129 Stat. 2242, 3076-78
(2015). Under sections 6721(c)(3) and 6722(c)(3), an error in a
reported dollar amount generally is ``de minimis'' if the difference
between any single amount reported in error and the correct amount
required to be reported does not exceed $100. If such a difference is
with respect to reporting an amount of tax withheld, the difference may
not be more than $25.
On October 17, 2018, the Department of the Treasury (Treasury
Department) and the IRS published a notice of proposed rulemaking (REG-
118826-16) in the Federal Register (83 FR 52726) containing proposed
regulations to implement the de minimis error safe harbor exceptions,
as well as to update dollar amounts, definitions, and references
reflecting various statutory amendments to the Code that are not
accounted for in provisions of existing regulations relating to
information return and payee statement penalties (proposed
regulations). The proposed regulations were issued following a notice
announcing and describing regulations intended to be issued under
sections 6721, 6722, and 6724. See Notice 2017-09, 2017-4 I.R.B. 542
(January 23, 2017).
The Treasury Department and the IRS received six written comments
in response to the notice of proposed rulemaking. All of the written
comments responding to the notice of proposed rulemaking are available
at <a href="https://www.regulations.gov">https://www.regulations.gov</a> or upon request. Some comments merely
expressed appreciation for the proposed regulations. No public hearing
was requested or held. After consideration of the written comments, the
proposed regulations are adopted as modified by this Treasury Decision.
Summary of Comments and Explanation of Revisions
This Summary of Comments and Explanation of Revisions section
addresses the substantive comments in response to the notice of
proposed rulemaking that disagreed with or requested clarification of
the proposed regulations. See the Explanation of Provisions section of
REG-118826-16 for a detailed explanation of the proposed regulations.
I. Effect of the Regulations on Tax Compliance
One comment stated that the proposed regulations ``will increase
the amount of regulation we have when it comes to `failure to file
cases' in the US.'' The comment did not describe how the proposed
regulations would increase the amount of regulation applicable to
``failure to file cases.'' The Treasury Department and the IRS note
that the regulations implement statutory provisions providing certain
protections to filers and payees, and the amount of
[[Page 87697]]
regulation is only one of several factors that must be considered in
implementing statutory provisions. The Treasury Department and the IRS
further note that the safe harbor is generally intended to provide
filers with relief from penalties that would otherwise accrue due to
unintentional de minimis errors in reporting correct dollar amounts on
information returns and payee statements. Accordingly, the final
regulations do not adopt this comment.
II. De minimis Error Safe Harbor Election
A. Applying the Election to Individual Securities and Individual
Accounts
One comment requested a more efficient way to furnish correct payee
statements generally. The commentator did not suggest a specific method
for furnishing correct payee statements; nevertheless, the method for
furnishing correct payee statements is beyond the scope of these
regulations, which is limited to implementing the two de minimis error
safe harbor exceptions and otherwise updating existing regulations for
statutory changes. The final regulations therefore do not adopt this
comment.
One comment disagreed with providing filers the option to choose
whether to correct de minimis errors. The comment also stated that the
de minimis threshold was too high and disagreed with the de minimis
error safe harbor exceptions applying on a ``per security'' rather than
a ``per account'' basis. The Treasury Department and the IRS note that
sections 6721(c)(3) and 6722(c)(3) mandate the option for filers to
choose whether to correct de minimis errors, subject to an election by
a payee to override this option. Sections 6721(c)(3)(A) and
6722(c)(3)(A) also mandate the de minimis thresholds with specificity.
The final regulations reflect these statutory requirements. The
Treasury Department and the IRS further note that the statutory de
minimis error safe harbor exceptions apply on a ``per statement''
basis. Section 6722(c)(3)(A) expressly provides that the de minimis
error safe harbor exceptions apply ``with respect to any payee
statement.'' Further, section 6722(c)(3)(B) provides that the de
minimis error safe harbor exceptions ``shall not apply to any payee
statement if the person to whom such statement is required to be
furnished makes an election . . . with respect to such statement.'' To
the extent that a statement relates only to a single security, the
statute applies, in effect, on a ``per security'' basis. The statute
allows for this outcome, and the final regulations accord with the
plain reading of the statute.
One comment reiterated comments submitted in 2018 prior to the
publication of the proposed regulations. This comment suggested that a
payee's election to override the de minimis error safe harbor
exceptions should apply on an account-by-account basis, rather than on
a statement-by-statement basis. The comment questioned whether it was
Congress's intent to require taxpayers to make separate elections for
each payee statement. As stated in the preamble of the notice of
proposed rulemaking, the comment's suggested rule would significantly
limit a payee's options for making elections and is inconsistent with
the statutory framework of sections 6721 through 6724, which generally
impose a penalty on a per statement (or return) basis. However, a payee
need not decide on elections individually for each payee statement
associated with a single account or filer but may elect as to all payee
statements or any combination of payee statements, with the election
lasting indefinitely by default. As recognized in the notice of
proposed rulemaking, nothing in the Code prohibits filers from
providing corrected statements regardless of the de minimis error safe
harbor exceptions or payee election. Thus, in drafting the PATH Act,
Congress was aware that filers could provide corrections on an account-
wide basis once a payee made an election with respect to a single type
of payee statement associated with that account.
B. Potential for Inconsistencies in Basis Reporting
A comment stated that the proposed regulations could cause
inconsistencies in basis reporting that are contrary to congressional
intent. The comment was specifically concerned with a situation in
which a payee would elect to override the de minimis error safe harbor
exceptions with respect to one form but not another corresponding form.
For example, a payee could elect to override the safe harbor exception
with respect to a Form 1099-DIV, Dividends and Distributions, but not
elect to override the safe harbor exception with respect to a
corresponding Form 1099-B, Proceeds From Broker and Barter Exchange
Transactions, potentially resulting in inconsistently reported basis.
The Treasury Department and the IRS have determined that the text
of proposed Sec. 1.6045-1(d)(6)(vii) should be amended to more clearly
address this situation. Under the rule as modified by these final
regulations, if a Form 1099-DIV is corrected because a payee elects to
override the de minimis error safe harbor exceptions as applied to the
Form 1099-DIV, then the adjusted basis reported on the corresponding
Form 1099-B must be based on and consistent with the corresponding
corrected dollar amount shown on the corrected Form 1099-DIV. After
taking into account the corrected dollar amount shown on the corrected
Form 1099-DIV, Form 1099-B should be corrected if there is an error on
the Form 1099-B and that error is not de minimis. In any event, to
avoid inconsistent reporting, the filer can always choose to correct
the Form 1099-B, or the payee can elect to override the de minimis safe
harbor exceptions with respect to the Form 1099-B.
The Treasury Department and the IRS note that the fact that
Congress enacted the de minimis error safe harbor exceptions indicates
Congress was aware that there might be minor inconsistencies in basis
reporting and that the de minimis error safe harbor exceptions apply
only for certain penalty purposes. The de minimis error safe harbor
exceptions have no effect on the operation of those provisions of the
Code that apply to determine the basis of property, such as section
1012 of the Code.
C. Effective Date of Payee Election
Another comment requested the payee election be effective only on a
prospective basis, citing administrative burden. The Treasury
Department and the IRS note that the election is prospective in that a
filer is required to furnish corrected statements after the date the
election is made by the payee, and an election, once made, is in effect
until revoked. Any administrative burden as described by the comment is
limited because the payee must elect no later than the later of 30 days
after the date on which the payee statement is required to be furnished
to the payee, or October 15 of the calendar year, to receive a correct
payee statement required to be furnished in that calendar year. As
discussed in the preamble to the proposed regulations, administrative
burden is but one factor that must be considered. A competing
consideration is the flexibility that Congress provided for payees to
elect out of the de minimis error safe harbor exceptions. The Treasury
Department and the IRS have determined that the proposed rules reflect
a reasonable balancing of these considerations. Thus, the final
regulations do not adopt this suggestion.
[[Page 87698]]
III. Clarification of Items in the Proposed Regulations and Other
Guidance
Two comments requested clarification that the term ``tax withheld''
in proposed Sec. 301.6722-1(d)(2) includes social security, Medicare,
and Additional Medicare taxes. The definition in the proposed
regulations referenced some of the more common types of taxes withheld
but was not intended to be an exhaustive list of all Federal taxes
considered to be ``tax withheld.'' The use of the term ``includes'' in
proposed Sec. 301.6722-1(d)(2) is based on the definition of
``includes'' in section 7701(c) of the Code, which provides that the
term ``includes'' when used in a definition ``shall not be deemed to
exclude other things otherwise within the meaning of the term
defined.'' Nevertheless, to resolve any ambiguity as to whether the
term ``tax withheld'' includes social security, Medicare, and
Additional Medicare taxes, the final regulations generally adopt the
text of proposed Sec. 301.6722-1(d)(2) but modify the definition of
``tax withheld'' by adding a reference to section 3102 of the Code in
Sec. 301.6722-1(d)(2).
One comment requested clarification on whether different taxes
withheld and reported separately on an information return or payee
statement are considered separately in determining whether the de
minimis threshold is reached. To illustrate, the comment asked if
errors on an employee's Form W-2, Wage and Tax Statement, in the
amounts of $20 in Federal income tax withheld, $20 in Medicare tax
withheld, and $7.41 in Additional Medicare tax withheld would be
considered separately for de minimis threshold purposes. The definition
of ``de minimis error'' in proposed Sec. 301.6722-1(d)(2) refers to
``any single amount in error.'' Accordingly, if a payee statement does
not require taxes withheld to be combined into a single amount for
reporting purposes, then each single amount of tax required to be
reported separately would be considered separately in determining
whether an error is de minimis. To respond to the concern raised by
this comment, the final regulations add new examples in Sec. 301.6722-
1(d)(5)(iv) and (v) to illustrate this result and update the Table of
Contents in Sec. 301.6721-0 relating to Sec. 301.6722-1(d)(5).
The comment also suggested that additional disclosures be provided
in the General Instructions for Forms W-2 and W-3, Transmittal of Wage
and Tax Statements. The comment correctly noted that the de minimis
error safe harbor exceptions under sections 6721(c)(3) and 6722(c)(3)
apply only for information return and payee statement penalty purposes,
and do not apply for other purposes, including the requirement to pay
and report employment taxes on Form 941, Employer's QUARTERLY Federal
Tax Return. The comment suggested including a note of caution
concerning the effect of incorrect information returns on other aspects
of tax compliance. The Treasury Department and the IRS will consider
revising the General Instructions for Forms W-2 and W-3. To respond to
the concern raised by this comment, the final regulations add
Sec. Sec. 301.6721-1(e)(5) and 301.6722-1(d)(7), which state that the
de minimis error safe harbor exceptions under sections 6721(c)(3) and
6722(c)(3) apply only for information return and payee statement
penalty purposes, respectively, and not for other purposes, including
requirements to pay and report taxes pursuant to provisions of the Code
other than sections 6721 and 6722. The final regulations also add
Sec. Sec. 301.6721-1(e)(4) and 301.6722-1(d)(6) to make clear that,
regardless of whether the de minimis error safe harbor exceptions
provide an exception for not filing or furnishing the corrected
statement, a filer may voluntarily file (1) a corrected information
return if the corresponding payee statement is furnished concurrently,
or (2) a corrected payee statement may be furnished voluntarily if the
corresponding information return is filed concurrently.
Finally, proposed Sec. 301.6724-1(g) proposed to update the
questions and answers in Sec. 301.6724-1(g) regarding the due
diligence safe harbor as in effect on October 12, 2018, the date the
proposed regulations were published in the Federal Register. The
proposed changes updated the existing regulations to remove outdated
references and to make numerous conforming amendments to reflect the
addition and redesignation of paragraphs. No comments were received in
response to the proposed changes to Sec. 301.6724-1(g). Nevertheless,
the final regulations make non-substantive formatting changes to
convert the outmoded questions and answers into more clearly stated
rules.
Applicability Dates
The proposed regulations provided that the regulations generally
would apply with respect to information returns required to be filed
and payee statements required to be furnished on or after January 1 of
the calendar year immediately following the date of publication of a
Treasury decision adopting these rules as final regulations in the
Federal Register.
However, the proposed regulations provided that proposed Sec.
301.6724-1(h) would apply with respect to information returns required
to be filed and payee statements required to be furnished on or after
January 1, 2017. The final regulations generally adopt the
applicability dates proposed in the proposed regulations. However,
because Notice 2017-09 was released to the public on January 4, 2017,
the final regulations postpone the applicability date of Sec.
301.6724-1(h) by providing that Sec. 301.6724-1(h) applies with
respect to information returns required to be filed and payee
statements required to be furnished after January 4, 2017.
Effect on Other Documents
These final regulations under sections 6045(g), 6721, 6722, and
6724 supersede Notice 2017-09 with respect to information returns
required to be filed and payee statements required to be furnished on
or after January 1, 2024.
Special Analyses
I. Regulatory Planning and Review
Pursuant to the Memorandum of Agreement, Review of Treasury
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory
actions issued by the IRS are not subject to the requirements of
section 6 of Executive Order 12866, as amended. Therefore, a regulatory
impact assessment is not required.
II. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it
is hereby certified that the regulations will not have a significant
economic impact on a substantial number of small entities. Accordingly,
a regulatory flexibility analysis is not required. These regulations
implement the de minimis error safe harbor exceptions in sections
6721(c)(3) and 6722(c)(3) to the sections 6721 and 6722 penalties.
Pursuant to section 6722(c)(3)(B), these regulations also provide for
the time and manner for elections by payees that the de minimis error
safe harbor exceptions not apply, including optional notifications by
filers to provide for an alternative reasonable manner for the
election. Finally, these regulations provide rules for revocations by
payees of elections and record retention rules.
Although these regulations may affect a substantial number of small
entities, the economic impact on these entities is not significant. The
de minimis error
[[Page 87699]]
safe harbor exceptions are expected to reduce the burden on all filers,
including small entities, to file corrected information returns and
furnish corrected payee statements because of de minimis errors. In
those cases where payees opt to make a voluntary election for the de
minimis error safe harbor exceptions to not apply to a payee statement,
the expense of making the voluntary election will be borne by the
payees, some of which may be small entities. However, any expense to
make this voluntary election is expected to be minimal and therefore
not have a significant economic impact.
Filers that are small entities receiving elections may incur costs
in processing the elections, including initial costs in implementing
systems or modifying existing systems to process elections, and
subsequently in time incurred administering these systems. However,
because section 6722(c)(3)(B) provides for a payee election, such costs
flow from the statute regardless of these regulations. The Code and
regulations have long required the filing of information returns and
the furnishing of payee statements by filers. Accordingly, systems for
filing information returns and furnishing payee statements are already
in existence. Any costs incurred pursuant to these regulations in
modifying those systems are not expected to be significant. These
regulations provide clarity regarding the election process, which is
expected to result in a more streamlined process for correcting payee
statements.
Similarly, in those cases where payees opt to make a voluntary
revocation of a prior voluntary election, the expense of making the
voluntary revocation will be borne by the payees, some of which may be
small entities. Any expense to make a voluntary revocation of a prior
voluntary election is expected to be minimal and therefore not have a
significant economic impact. Filers that are small entities receiving
revocations will benefit from the resulting applicability of the de
minimis error safe harbor exceptions, resulting in reduced burden to
file corrected information returns and furnish corrected payee
statements because of de minimis errors. Filers that are small entities
receiving revocations may incur costs in processing the revocations
similar to those incurred in processing elections; however, it is
expected that systems implementing payee elections can be modified with
minimal additional cost to account for revocations in addition to
elections. Filers that are small entities choosing to provide the
optional notification to payees regarding an alternative reasonable
manner for making the election may incur costs in providing the
notification. However, it is expected that filers will only provide
optional notifications if they have determined that any cost in
providing the notification is offset by a resulting economic benefit to
the filer, such as a more cost-efficient election system. The record
retention rules may also increase expenses for filers that are small
entities; however, any added expenses are expected to be minimal given
existing record retention systems.
Pursuant to section 7805(f), the notice of proposed rulemaking
preceding these final regulations was submitted to the Chief Counsel
for Advocacy of the Small Business Administration for comment on its
impact on small businesses. No comments were received from the Chief
Counsel for Advocacy of the Small Business Administration.
III. Paperwork Reduction Act
The collection of information contained in these final regulations
has been reviewed and approved by the Office of Management and Budget
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3507(d)) under control number 1545-2301.
The collection of information in these final regulations is in
Sec. 301.6722-1(d)(3)(iii) regarding the payee election, (d)(3)(v)(B)
regarding the filer notification, (d)(3)(vii) regarding the payee
revocation, and (d)(4) regarding record retention. The information in
final regulations Sec. 301.6722-1(d)(3)(iii) and (vii) will be used by
payees to make and revoke elections and by filers to determine whether
they are required to furnish corrected payee statements to payees and
file corrected information returns with the IRS to avoid application of
penalties under sections 6721 and 6722 of the Code. The information
under final regulation Sec. 301.6722-1(d)(3)(v)(B) will be used to
give filers and payees flexibility in establishing reasonable
alternative manners for elections. And the information in final
regulation Sec. 301.6722-1(d)(4) will be used by the IRS to determine
whether filers are subject to penalties under sections 6721 and 6722.
The collection of information in final regulations Sec. 301.6722-
1(d)(3)(iii) regarding the payee election, (d)(3)(v)(B) regarding the
filer notification, and (d)(3)(vii) regarding the payee revocation is
voluntary to obtain a benefit. The collection of information in final
regulation Sec. 301.6722-1(d)(4) regarding record retention is
mandatory. The likely respondents are individuals, state or local
governments, farms, business or other for-profit institutions,
nonprofit institutions, and small businesses or organizations.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a valid
control number assigned by the Office of Management and Budget.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated costs and benefits and take
certain other actions before issuing a final rule that includes any
Federal mandate that may result in expenditures in any one year by a
state, local, or tribal government, in the aggregate, or by the private
sector, of $100 million (updated annually for inflation). This rule
does not include any Federal mandate that may result in expenditures by
state, local, or tribal governments, or by the private sector in excess
of that threshold.
V. Executive Order 13132: Federalism
E.O. 13132 (Federalism) prohibits an agency from publishing any
rule that has federalism implications if the rule either imposes
substantial, direct compliance costs on state and local governments,
and is not required by statute, or preempts state law, unless the
agency meets the consultation and funding requirements of section 6 of
the E.O. This rule does not have federalism implications and does not
impose substantial direct compliance costs on state and local
governments or preempt state law within the meaning of the E.O.
VI. Congressional Review Act
Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.),
the Office of Information and Regulatory Affairs has designated this
rule as not a major rule as defined by 5 U.S.C. 804(2).
Drafting Information
The principal author of these regulations is Alexander Wu of the
Office of the Associate Chief Counsel (Procedure and Administration).
However, other personnel from the Treasury Department and the IRS
participated in the development of the regulations.
[[Page 87700]]
Statement of Availability
The IRS Notices and Revenue Procedures cited in this Treasury
Decision are published in the Internal Revenue Bulletin (or Cumulative
Bulletin) and are available from the Superintendent of Documents, U.S.
Government Publishing Office, Washington, DC 20402, or by visiting the
IRS website at <a href="https://www.irs.gov">https://www.irs.gov</a>.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, the Treasury Department and the IRS amend 26 CFR parts
1 and 301 as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
0
Par. 2. Section 1.6045-1 is amended by:
0
1. Redesignating paragraph (d)(6)(vii) as paragraph (d)(6)(viii);
0
2. Adding a new paragraph (d)(6)(vii);
0
3. In newly redesignated paragraph (d)(6)(viii), designating Examples 1
through 4 as paragraphs (d)(6)(viii)(A) through (D), respectively;
0
4. Redesignating newly designated paragraphs (d)(6)(viii)(A)(i) through
(iii) as paragraphs (d)(6)(viii)(A)(1) through (3), respectively;
0
5. In newly designated paragraph (d)(6)(viii)(B), removing the language
``Example 1'' and adding ``paragraph (d)(6)(viii)(A)(1) of this section
(Example 1)'' in its place;
0
6. Redesignating newly designated paragraphs (d)(6)(viii)(C)(i) and
(ii) as paragraphs (d)(6)(viii)(C)(1) and (2);
0
7. Adding paragraph (d)(6)(ix); and
0
8. Revising paragraphs (k)(4), (l), and (q).
The additions and revisions read as follows:
Sec. 1.6045-1 Returns of information of brokers and barter exchanges.
* * * * *
(d) * * *
(6) * * *
(vii) Treatment of de minimis errors. For purposes of this section,
a customer's adjusted basis generally must be determined by treating
any incorrect dollar amount that is not required to be corrected by
reason of section 6721(c)(3) or 6722(c)(3) as the correct amount.
However, if a broker, upon identifying a dollar amount as incorrect,
voluntarily or is required to file a corrected information return and
furnish the corresponding corrected payee statement showing the correct
dollar amount, then regardless of any provision under section 6721 or
6722, the adjusted basis for purposes of this section must be based on
and consistent with the correct dollar amount as reported on the
corrected information return and corrected payee statement.
* * * * *
(ix) Applicability date. Paragraph (d)(6)(vii) of this section
applies with respect to information returns required to be filed and
payee statements required to be furnished on or after January 1, 2024.
* * * * *
(k) * * *
(4) Cross-reference to penalty. For provisions for failure to
furnish timely a correct payee statement, see Sec. 301.6722-1 of this
chapter (Procedure and Administration Regulations). See Sec. 301.6724-
1 of this chapter for the waiver of a penalty if the failure is due to
reasonable cause and is not due to willful neglect.
(l) Use of magnetic media or electronic form. See Sec. 301.6011-2
of this chapter for rules relating to filing information returns on
magnetic media or in electronic form and for rules relating to waivers
granted for undue hardship. A broker or barter exchange that fails to
file a proper Form 1099 electronically, when required, may be subject
to a penalty under section 6721 for each such failure. See paragraph
(j) of this section.
* * * * *
(q) Applicability dates. Except as otherwise provided in paragraphs
(d)(6)(ix), (m)(2)(ii), and (n)(12)(ii) of this section, and in this
paragraph (q), this section applies on or after January 6, 2017.
Paragraphs (k)(4) and (l) of this section apply with respect to
information returns required to be filed and payee statements required
to be furnished on or after January 1, 2024. (For rules that apply
after June 30, 2014, and before January 6, 2017, see 26 CFR 1.6045-1,
as revised April 1, 2016.)
PART 301--PROCEDURE AND ADMINISTRATION
0
Par. 3. The authority citation for part 301 continues to read in part
as follows:
Authority: 26 U.S.C. 7805.
* * * * *
0
Par. 4. Section 301.6721-0 is amended by:
0
1. Revising the introductory text and the entries for Sec. 301.6721-
1(b)(6) and (d)(4);
0
2. Redesignating the entries for Sec. 301.6721-1(e), (e)(1) and (2),
(f), (f)(1) through (6), (g), and (g)(1) through (6) as entries for
Sec. 301.6721-1(f), (f)(1) and (2), (g), (g)(1) through (6), (h), and
(h)(1) through (6), respectively;
0
3. Adding entries for Sec. 301.6721-1(e), (e)(1) through (5), (i), and
(j);
0
4. Redesignating the entries for Sec. 301.6722-1(d) and (d)(1) through
(3) as the entries for Sec. 301.6722-1(e) and (e)(1) through (3);
0
5. Adding entries for Sec. 301.6722-1(d), (d)(1) through (7), (e)(4),
(f), and (g);
0
6. In the entry for Sec. 301.6724-1(c)(4), removing ``Internal Revenue
Service'' and adding ``IRS'' in its place;
0
7. Revising the entry for Sec. 301.6724-1(h);
0
8. Removing the entries for Sec. 301.6724-1(h)(1) and (2); and
0
9. Adding an entry for Sec. 301.6724-1(o).
The additions and revisions read as follows:
Sec. 301.6721-0 Table of Contents.
In order to facilitate the use of Sec. Sec. 301.6721-1 through
301.6724-1, this section lists the paragraph headings contained in
these sections.
Sec. 301.6721-1 Failure to file correct information returns.
* * * * *
(b) * * *
(6) Applications to returns not due on January 31, February 28,
or March 15.
* * * * *
(d) * * *
(4) Nonapplication to returns not due on January 31, February
28, or March 15.
(e) Safe harbor exception for certain de minimis errors.
(1) In general.
(2) Definition of de minimis error.
(3) Election to override the safe harbor exception.
(4) Voluntary corrections.
(5) Limitations on applicability.
* * * * *
(i) Adjustment for inflation.
(j) Applicability date.
Sec. 301.6722-1 Failure to furnish correct payee statements.
* * * * *
(d) Safe harbor exception for certain de minimis errors.
(1) In general.
(2) Definition of de minimis error.
(3) Election to override the safe harbor exception.
(4) Record retention.
(5) Examples.
[[Page 87701]]
(6) Voluntary corrections.
(7) Limitations on applicability.
(e) * * *
(4) Filer.
(f) Adjustment for inflation.
(g) Applicability date.
* * * * *
Sec. 301.6724-1 Reasonable cause.
* * * * *
(h) Reasonable cause safe harbor after election under section
6722(c)(3)(B).
* * * * *
(o) Applicability date.
0
Par. 5. Section 301.6721-1 is amended by:
0
1. Revising paragraphs (a)(1) and (b)(1) and (2);
0
2. In paragraph (b)(3), removing ``Internal Revenue Service'' and
adding ``IRS'' in its place;
0
3. Revising paragraph (b)(5) introductory text and (b)(5)(i) and (ii);
0
4. Adding paragraph (b)(6);
0
5. Revising paragraphs (c)(1), (c)(2)(iii), and (c)(3) introductory
text;
0
6. In paragraph (c)(3), designating Examples 1 through 3 as paragraphs
(c)(3)(i) through (iii), respectively;
0
7. In newly designated paragraphs (c)(3)(i) through (iii), removing
``Internal Revenue Service'' and adding ``IRS'' in its place;
0
8. In newly designated paragraph (c)(3)(ii), removing the language
``the error'' and adding ``The error'' in its place;
0
9. Revising paragraph (d);
0
10. Redesignating paragraphs (e), (f), (g), and (h) as paragraphs (f),
(g), (h), and (j), respectively;
0
11. Adding a new paragraph (e);
0
12. Revising newly redesignated paragraphs (f)(1) and (g)(1);
0
13. In newly redesignated paragraph (g)(3)(iii), removing ``Internal
Revenue Service'' and adding ``IRS'' in its place;
0
14. Revising newly redesignated paragraphs (g)(4) through (6), (h)(1),
and (h)(2)(x) and (xi);
0
15. Adding paragraphs (h)(2)(xii);
0
16. Revising newly redesignated paragraphs (h)(3)(xvii), (xviii),
(xxiv), and (xxv);
0
17. Adding paragraphs (h)(3)(xxvi) and (xxvii);
0
18. Revising newly redesignated paragraphs (h)(4) and (6);
0
19. Adding paragraph (i); and
0
20. Revising newly redesignated paragraph (j).
The revisions and additions read as follows:
Sec. 301.6721-1 Failure to file correct information returns.
(a) * * *
(1) General rule. A penalty of $250 is imposed for each information
return (as defined in section 6724(d)(1) and paragraph (h) of this
section) with respect to which a failure (as defined in section
6721(a)(2) and paragraph (a)(2) of this section) occurs. No more than
one penalty will be imposed under this paragraph (a)(1) with respect to
a single information return even though there may be more than one
failure with respect to such return. The total amount imposed on any
person for all failures during any calendar year with respect to all
information returns will not exceed $3,000,000. See paragraph (b) of
this section for a reduction in the penalty if the failures are
corrected within specified periods. See paragraph (c) of this section
for an exception to the penalty for inconsequential errors or
omissions. See paragraph (d) of this section for an exception to the
penalty for a de minimis number of failures. See paragraph (e) of this
section for a safe harbor exception for certain de minimis errors. See
paragraph (f) of this section for lower limitations to the $3,000,000
maximum penalty. See paragraph (g) of this section for higher penalties
if a failure is due to intentional disregard of the requirement to file
timely correct information returns. See paragraph (i) of this section
for inflation adjustments to penalty amounts. See Sec. 301.6724-
1(a)(1) for waiver of the penalty for a failure that is due to
reasonable cause.
* * * * *
(b) * * *
(1) Correction within 30 days. The penalty imposed under section
6721(a) for a failure to file timely or for a failure to include
correct information will be $50 in lieu of $250 if the failure is
corrected on or before the 30th day after the required filing date
(corrected within 30 days). The total amount imposed on a person for
all failures during any calendar year that are corrected within 30 days
will not exceed $500,000.
(2) Correction after 30 days but on or before August 1. The penalty
imposed under section 6721(a) for a failure to file timely or for a
failure to include correct information will be $100 in lieu of $250 if
the failure is corrected after the 30-day period described in paragraph
(b)(1) of this section but on or before August 1 of the year in which
the required filing date occurs (corrected after 30 days but on or
before August 1). See paragraph (b)(6) of this section for an exception
to the provisions of this paragraph (b)(2) for returns that are not due
on January 31, February 28, or March 15. The total amount imposed on a
person for all failures during any calendar year corrected after 30
days but on or before August 1 will not exceed $1,500,000.
* * * * *
(5) Examples. The provisions of paragraphs (a) and (b)(1) through
(4) of this section may be illustrated by the following examples. These
examples do not take into account any possible application of the de
minimis exception under paragraph (d) of this section, the safe harbor
exception for certain de minimis errors under paragraph (e) of this
section, the lower small business limitations under paragraph (f) of
this section, the penalty for intentional disregard under paragraph (g)
of this section, adjustments for inflation under paragraph (i) of this
section, or the reasonable cause waiver under Sec. 301.6724-1(a):
(i) Example 1. Corporation R fails to file timely 23,000 Forms
1099-MISC, Miscellaneous Information, for the 2023 calendar year. Of
the forms filed, 5,000 are filed with correct information within 30
days, and 18,000 after 30 days but on or before August 1, 2024. For the
same year R fails to file timely 400 Forms 1099-INT, Interest Income,
which R eventually files on September 28, 2024, after the period for
reduction of the penalty has elapsed. R is subject to a penalty of
$100,000 for the 400 forms that were not filed by August 1 ($250 x 400
= $100,000), $1,500,000 for the 18,000 forms filed after 30 days ($100
x 18,000 = $1,800,000, limited to $1,500,000 under paragraph (b)(2) of
this section), and $250,000 for the 5,000 forms filed within 30 days
($50 x 5,000 = $250,000), for a total penalty of $1,850,000.
(ii) Example 2. Corporation T fails to file timely 14,000 Forms
1099-MISC for the 2023 calendar year. T files the 14,000 Forms 1099-
MISC on September 3, 2024. Because T does not correct the failure by
August 1, 2024, T is subject to a penalty of $3,000,000, the maximum
penalty under paragraph (a) of this section. Without the limitation of
paragraph (a) of this section, T would be subject to a $3,500,000
penalty ($250 x 14,000 = $3,500,000).
* * * * *
(6) Application to returns not due on January 31, February 28, or
March 15. For returns that are not due on January 31, February 28, or
March 15 (for example, a Form 8300, Report of Cash Payments Over
$10,000 Received in a Trade or Business), the penalty is $50 if the
failure is corrected within 30 days. If the failure is corrected after
30 days, the penalty is $250 rather than $100. There is no period
during which the penalty is reduced to $100 under paragraph (b)(2) of
this section.
(c) * * *
(1) In general. An inconsequential error or omission is not
considered a
[[Page 87702]]
failure to include correct information. For purposes of this paragraph
(c)(1), the term inconsequential error or omission means any failure
that 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. See paragraph (h)(5) of this
section for the definition of payee.
(2) * * *
(iii) Any monetary amounts, except as provided in paragraph (e) of
this section. The IRS may, by administrative pronouncement, specify
other types of errors or omissions that are never inconsequential.
(3) Examples. The provisions of this paragraph (c) may be
illustrated by the following examples, which do not take into account
any possible application of the penalty for intentional disregard under
paragraph (g) of this section or the reasonable cause waiver under
Sec. 301.6724-1(a):
* * * * *
(d) Exception for a de minimis number of failures--(1)
Requirements. The penalty under paragraph (a) of this section is not
imposed for a de minimis number of failures to include correct
information if the filer corrects such failures on or before August 1
of the year in which the required filing date occurs. See paragraph
(d)(4) of this section for special rules relating to returns that are
not due on January 31, February 28, or March 15.
(2) Calculation of the de minimis exception. The number of returns
to which the de minimis exception in this paragraph (d) applies for any
calendar year will not exceed the greater of 10 or one-half of one
percent of the total number of all information returns the filer is
required to file during the year. If the number of returns on which the
filer fails to include correct information exceeds the number of
returns to which the de minimis exception applies, the de minimis
exception applies to those returns that will afford the filer the
greatest reduction in penalty. The de minimis exception applies to
failures to include correct information that exist after the
application (if any) of the safe harbor exception for certain de
minimis errors under paragraph (e) of this section and after the
application (if any) of the waiver for reasonable cause under section
6724(a) and Sec. 301.6724-1. Returns to which the de minimis exception
applies are treated as having been originally filed with correct
information.
(3) Examples. The provisions of this paragraph (d) may be
illustrated by the following examples. In each of the examples, the
failures to file and to include correct information are subject to
penalty under paragraph (a) of this section. The examples do not take
into account any possible application of the safe harbor exception for
certain de minimis errors under paragraph (e) of this section, the
lower small business limitations under paragraph (f) of this section,
the penalty for intentional disregard under paragraph (g) of this
section, any adjustment for inflation under paragraph (i) of this
section, or the reasonable cause waiver under Sec. 301.6724-1(a).
(i) Example 1. Corporation T files timely 10,000 Forms 1099-INT,
Interest Income, for 2023 by February 28, 2024. The 10,000 forms are
all the information returns that T is required to file during the 2024
calendar year. Of the forms filed, 70 contained incorrect information.
T corrects the failures on July 12, 2024. No penalty is imposed for 50
of the failures (that is, the greater of 10 or .005 x 10,000 = 50) even
though the total failures, 70, exceed the number to which the de
minimis exception may apply. The $100 penalty under paragraph (b)(2) of
this section is imposed, in lieu of $250, for the remaining 20
failures, which were corrected after 30 days but before August 1,
resulting in a total penalty of $2,000 ($100 x 20 = $2,000).
(ii) Example 2. Corporation U files timely 9,500 Forms 1099-INT for
2023 by February 28, 2024. Fifty of these returns contain incorrect
information with respect to which U files correct information on August
1, 2024. U also files 500 Forms 1099-INT for 2023 on August 30, 2024,
after the required filing date. The 10,000 returns are all the
information returns that U is required to file during the 2024 calendar
year. The calculation of the de minimis exception is based on the
10,000 returns required to be filed during the 2024 calendar year even
though 500 of the returns filed during the year were not filed timely.
Therefore, the number of failures for which the de minimis exception
applies is 50, and accordingly no penalty is imposed for the 50 Forms
1099-INT that were corrected on August 1. However, the $250 penalty
under paragraph (a)(1) of this section is imposed for each failure to
file timely (that is, the de minimis exception does not apply to this
penalty for failure to file timely), resulting in a total penalty of
$125,000 ($250 x 500 = $125,000).
(iii) Example 3. Corporation V files timely 9,950 Forms 1099-INT
for 2023 by February 28, 2024. However, V fails to file timely 50 of
its Forms 1099-INT. The 10,000 returns are all the information returns
that V is required to file during the 2024 calendar year. Upon
discovering the error, V files the 50 returns within 30 days of
February 28, 2024. The 50 returns are complete and correct except that
V fails to include the taxpayer identification numbers of the payees on
the returns. V files corrected returns on August 1, 2024. Absent
application of the de minimis exception, the penalty imposed for the
failure to include correct information would be $5,000 ($100 x 50 =
$5,000). Because the incorrect returns are corrected on August 1, the
50 forms are treated under the de minimis exception as originally filed
with correct information, and therefore no penalty is imposed under
paragraph (a) of this section for the failure to include correct
information. Nevertheless, the penalty under paragraph (a) of this
section is imposed for the failure to file timely the 50 returns
because the de minimis exception does not apply to the penalty for the
failure to file timely. Hence, a penalty of $2,500 ($50 x 50 = $2,500)
is imposed.
(iv) Example 4. Corporation W files timely 100 Forms 1099-DIV and
files an additional 50 Forms 1099-DIV late, but within 30 days of
February 28, 2024. These are all the information returns that W was
required to file during the 2024 calendar year. W discovers errors on
10 of the returns that were filed timely, and on 5 of the returns that
were filed late. W corrects all the errors on August 1, 2024. The de
minimis exception applies to 10 of the corrected returns. The exception
will be allocated to the 10 returns that were filed timely with
incorrect information, because that allocation is most favorable to W
(that is, applying the exception to a return filed late with incorrect
information would save W $50, by reducing the penalty on that return
from $100 to $50, but applying the exception to a return filed timely
would save W $100, by reducing the penalty on that return from $100 to
$0). (See paragraph (b)(4) of this section.)
(4) Nonapplication to returns not due on January 31, February 28,
or March 15. The exception for a de minimis number of failures provided
in paragraph (d)(1) of this section does not apply to failures with
respect to returns that are not due on January 31, February 28, or
March 15 (for example, Forms 8300 reporting certain cash payments of
$10,000 or more). Nevertheless, the returns that are not due on January
31, February 28, or March 15 are included in the total number of all
information returns that the filer is required to file during a year
for purposes of calculating the number of the returns subject to the
[[Page 87703]]
de minimis exception under paragraph (d)(2) of this section.
(e) Safe harbor exception for certain de minimis errors--(1) In
general. Except as provided in paragraph (e)(3) or (g)(4) of this
section, the penalty under section 6721(a) and paragraph (a) of this
section is not imposed for a failure described in section 6721(a)(2)(B)
and paragraph (a)(2)(ii) of this section (failure to include correct
information on information return) if the failure relates to an
incorrect dollar amount and is a de minimis error. If the safe harbor
in this paragraph (e) applies to an information return and the
information return was otherwise correct and timely filed, no
correction is required and, for purposes of this section, the
information return is treated as having been filed with all of the
correct required information.
(2) Definition of de minimis error. For the definition of de
minimis error, see Sec. 301.6722-1(d)(2).
(3) Election to override the safe harbor exception. The safe harbor
exception provided for by paragraph (e)(1) of this section does not
apply to any information return if the incorrect dollar amount that
would qualify as a de minimis error for purposes of this paragraph (e)
relates to an amount with respect to which an election has been made
(and has not been revoked) under section 6722(c)(3)(B) and Sec.
301.6722-1(d)(3). See Sec. 301.6722-1(d)(3) for additional rules
relating to the election under section 6722(c)(3)(B) and Sec.
301.6722-1(d)(3), including rules relating to the revocation of the
election and the inapplicability of the election to certain
information. See Sec. 301.6724-1(h) for rules relating to waiver of
the section 6721 penalty in cases where the safe harbor exception
provided for by paragraph (e)(1) of this section does not apply because
of an election under Sec. 301.6722-1(d)(3).
(4) Voluntary corrections. Regardless of whether the de minimis
error safe harbor in this paragraph (e) provides an exception for not
filing a particular corrected information return, the corrected
information return may be filed voluntarily if a corresponding payee
statement reflecting the information shown on the corrected information
return is concurrently furnished to the payee.
(5) Limitations on applicability. The safe harbor exception
provided for by paragraph (e)(1) of this section applies only for the
purposes of information return penalties under section 6721.
Accordingly, this safe harbor exception applies to the reporting of
amounts on information returns, including the reporting of the
withholding of tax on information returns, but it does not apply for
purposes of any underlying requirements to withhold or pay tax.
Interest, penalties, and other additions to tax may be imposed under
other sections for under-withholding or underpaying tax in any amount.
(f) * * *
(1) In general. If a person meets the gross receipts test (as
defined in paragraph (f)(2) of this section) for any calendar year, the
total amount of the penalty imposed on the person for all failures
described in section 6721(a)(2) and paragraph (a)(2) of this section
during the calendar year will not exceed $1,000,000. The total amount
of the penalty imposed under paragraph (b)(1) of this section for
failures corrected within 30 days will not exceed $175,000 for the
calendar year. The total amount of the penalty imposed under paragraph
(b)(2) of this section for failures corrected after 30 days but on or
before August 1 will not exceed $500,000 for the calendar year.
* * * * *
(g) * * *
(1) Application of section 6721(e). If a failure is due to
intentional disregard of the requirement to file timely or to include
correct information on a return as described in paragraph (h) of this
section, the amount of the penalty imposed under paragraph (a) of this
section must be determined under paragraph (g)(4) of this section.
* * * * *
(4) Amount of the penalty. If one or more failures to file timely
or to include correct information are due to intentional disregard of
the requirement to file timely or to include correct information, then,
with respect to each failure determined under this paragraph (g)--
(i) Paragraphs (b), (d), (e), and (f) of this section will not
apply;
(ii) The $3,000,000 limitation under paragraph (a) of this section
will not apply, and the penalty under this paragraph (g) will not be
taken into account in applying the $3,000,000 limitation (or any
similar limitation under paragraph (b) or (f) of this section) to
penalties not determined under this paragraph (g);
(iii) The penalty imposed under paragraph (a) of this section will
be $500 or, if greater, the statutory percentage; and
(iv) The term statutory percentage means--
(A) In the case of a return other than a return required under
section 6045(a), 6041A(b), 6050H, 6050I, 6050J, 6050K, 6050L, or 6050V,
10 percent of the aggregate dollar amount of the items required to be
reported correctly;
(B) In the case of a return required to be filed by section
6045(a), 6050K, or 6050L, 5 percent of the aggregate dollar amount of
the items required to be reported correctly;
(C) In the case of a return required to be filed under section
6050I(a), for any transaction (or related transactions), the greater of
$25,000 or the amount of cash (within the meaning of section 6050I(d))
received in such transaction to the extent the amount of such cash does
not exceed $100,000; or
(D) In the case of a return required to be filed under section
6050V, 10 percent of the value of the benefit of any contract with
respect to which information is required to be included on the return.
(5) Computation of the penalty; aggregate dollar amount of the
items required to be reported correctly. The aggregate dollar amount
used in computing the penalty under this paragraph (g) is the amount
that is not reported or is reported incorrectly. If the intentional
disregard relates to a dollar amount, the statutory percentage is
applied to the difference between the dollar amount reported and the
amount required to be reported correctly. If the intentional disregard
relates to any other item on the return, the statutory percentage is
applied to the aggregate amount of items required to be reported
correctly. In determining the aggregate amount of items required to be
reported correctly, no item will be taken into account more than once.
For example, if a filer willfully fails to file a Form 1099-INT,
Interest Income, on which $800 of interest and $160 of Federal income
tax withheld (that is, backup withholding) is required to be reported,
only the $800 amount is taken into account in computing the penalty.
(6) Examples. The provisions of this paragraph (g) may be
illustrated by the following examples, which do not take into account
any adjustments for inflation under paragraph (i) of this section:
(i) Example 1. On December 1, 2023, Automobile dealer P receives
$55,000 from an individual for the purchase of an automobile in a
transaction subject to reporting under section 6050I. The individual
presents documents to P that identify him as John Doe. However, P
completes the Form 8300 (relating to cash payments over $10,000
received in a trade or business) and reflects the name of a cartoon
character as the filer. Because P knew at the time of filing the Form
8300 that the filer's name was not the name of the cartoon character,
he willfully failed to include correct information as described under
paragraph (g)(2) of this section.
[[Page 87704]]
Therefore, the penalty under paragraph (g)(4) of this section is
imposed for the intentional disregard of the requirement to include
correct information. The amount used in computing the penalty under
paragraph (g)(5) of this section is $55,000 (that is, the amount
required to be reported on the return with respect to which the payee
is not correctly identified). The amount of the penalty determined
under paragraph (g)(4)(iv)(C) of this section is $55,000 (that is, the
greater of $25,000 or the amount of cash received in the transaction up
to $100,000).
(ii) Example 2. On December 1, 2023, Individual B contacts his
agent, F, to act as his intermediary in the purchase of an automobile.
B gives F $20,000 and requests F to purchase the automobile in F's
name, which F does. F prepares the Form 8300 as required under section
6050I, but in the area designated for the name of the filer, F writes
confidential. Because F knew at the time the return was filed that it
contained incomplete information, the penalty under paragraph (g)(4) of
this section is imposed for the intentional disregard of the
requirement to include correct information. The amount used in
computing the penalty under paragraph (g)(5) of this section is $20,000
(that is, the amount required to be reported on the return with respect
to which the payee is not correctly identified). The amount of the
penalty determined under paragraph (g)(4)(iv)(C) of this section is
$25,000 (that is, the greater of $25,000 or the amount of cash received
in the transaction up to $100,000).
(iii) Example 3. Corporation M deliberately does not include $5,000
of dividends on a Form 1099-DIV, Dividends and Distributions, on which
a total of $200,000 (including the $5,000 dividends) is required to be
reported under section 6042(a). Because the failure was deliberate, M's
failure is due to intentional disregard of the requirement to include
correct information. Accordingly, the amount of the penalty imposed
under paragraph (a) of this section is determined under paragraph
(g)(4) of this section. Because the Form 1099-DIV is required to be
filed under section 6042(a), under paragraph (g)(4)(iv)(A) of this
section the amount of the penalty with respect to such failure is 10
percent of the aggregate dollar amount of the items that were required
to be but that were not reported correctly. Under paragraph (g)(5) of
this section, $5,000 is the difference between the dollar amount
reported and the amount required to be reported correctly. Therefore,
the amount of the penalty is $500 ($5,000 x 0.10 = $500).
(iv) Example 4. Form 8027, Employer's Annual Information Return of
Tip Income and Allocated Tips, requires certain large food and beverage
establishments to report certain information with respect to tips. The
form requires (among other things) that the establishment report its
gross receipts from food and beverage operations. Establishment A, in
intentional disregard of the information reporting requirement,
reported gross receipts of $1,000,000, when the correct amount was
$1,500,000. The significance of the gross receipts reporting
requirement is that section 6053(c)(3)(A) requires an establishment to
allocate as tips among its employees the excess of 8 percent of its
gross receipts over the aggregate amount reported by employees to the
establishment as tips under section 6053(a). A's misstatement of its
gross receipts caused A to show $80,000 on the Form 8027 as 8 percent
of its gross receipts, rather than the correct amount of $120,000. A
correctly reported the amount of tips reported to it by employees under
section 6053(a) as $80,000. Thus, A reported the excess of 8 percent of
its gross receipts over tips reported to it as zero, rather than as the
correct amount of $40,000. The requirement of reporting gross receipts
is considered merely a step in the computation of the excess of 8
percent of gross receipts over tips reported to A under section
6053(a), so that the penalty for intentional disregard will be $4,000
(that is, 10 percent of the difference between the $40,000 required to
be reported as the excess of 8 percent of gross receipts over tips
reported under section 6053(a), and the zero amount actually reported).
(h) * * *
(1) Information return. For purposes of this section, the term
information return has the same meaning as information return as
defined in section 6724(d)(1), including any statement described in
paragraph (h)(2) of this section, any return described in paragraph
(h)(3) of this section, and any other items described in paragraph
(h)(4) of this section.
(2) * * *
(x) Section 408(i) (relating to reports with respect to individual
retirement accounts or annuities on Form 1099-R, Distributions From
Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs,
Insurance Contracts, etc.);
(xi) Section 6047(d) (relating to reports by employers, plan
administrators, etc., on Form 1099-R); or
(xii) Section 6035 (relating to basis information with respect to
property acquired from decedents, generally Form 8971, Information
Regarding Beneficiaries Acquiring Property From a Decedent, and the
Schedule(s) A required to be filed along with it).
(3) * * *
(xvii) Section 1060(b) (relating to reporting requirements of
transferors and transferees in certain asset acquisitions, generally
reported on Form 8594, Asset Acquisition Statement), or section 1060(e)
(relating to information required in the case of certain transfers of
interests in entities);
(xviii) Section 4101(d) (relating to information reporting with
respect to fuel oils);
* * * * *
(xxiv) Section 6055 (relating to information returns reporting
minimum essential coverage);
(xxv) Section 6056 (relating to information returns reporting on
offers of health insurance coverage by applicable large employer
members);
(xxvi) Section 6050Y (relating to returns relating to certain life
insurance contract transactions); or
(xxvii) Section 6050Z (relating to reports relating to long-term
care premium statements).
(4) Other items. The term information return also includes any
form, statement, or schedule required to be filed with the IRS under
chapter 4 of the Internal Revenue Code (the Code) or with respect to
any amount from which tax is required to be deducted and withheld under
chapter 3 of the Code (or from which tax would be required to be so
deducted and withheld but for an exemption under the Code or any treaty
obligation of the United States), including but not limited to Form
1042-S, Foreign Person's U.S. Source Income Subject to Withholding, or
Form 8805, Foreign Partner's Information Statement of Section 1446
Withholding Tax.
* * * * *
(6) Filer. For purposes of this section the term filer means a
person that is required to file an information return as defined in
paragraph (h)(1) of this section under the applicable information
reporting section described in paragraphs (h)(2) through (4) of this
section.
(i) Adjustment for inflation. Each of the dollar amounts under
paragraphs (a), (b), (f) (other than paragraph (f)(2)), and (g) of this
section and section 6721(a), (b), (d) (other than section
6721(d)(2)(A)), and (e) will be adjusted for inflation pursuant to
section 6721(f).
(j) Applicability date. This section applies with respect to
information returns required to be filed on or after January 1, 2024.
See 26 CFR 301.6721-
[[Page 87705]]
1, as revised April 1, 2023, for rules applicable prior to January 1,
2024.
0
Par. 6. Section 301.6722-1 is amended by:
0
1. Revising paragraphs (a)(1), (a)(2)(ii), and (b)(2)(i);
0
2. In paragraphs (b)(2)(ii) and (iii), removing the comma at the end of
each paragraph and adding a semicolon in its place;
0
3. In paragraphs (b)(2)(iii) and (iv), removing ``Internal Revenue
Service'' and adding ``IRS'' in its place;
0
4. Revising paragraph (b)(3) introductory text;
0
5. In paragraph (b)(3), designating Examples 1 and 2 as paragraphs
(b)(3)(i) and (ii); and
0
6. In newly designated paragraph (b)(3)(ii), removing the language
``Example 1'' and adding ``paragraph (d)(3)(i) of this section (Example
1)'' in its place;
0
7. Revising paragraph (c)(1);
0
8. Redesignating paragraphs (c)(2)(i) through (iii) as paragraphs
(c)(2)(ii) through (iv);
0
9. Adding a new paragraph (c)(2)(i);
0
10. Revising newly redesignated paragraphs (c)(2)(ii) and (iii);
0
11. Redesignating paragraphs (d) and (e) as paragraphs (e) and (g);
0
12. Adding a new paragraph (d);
0
13. Revising newly redesignated paragraphs (e)(1), (e)(2) introductory
text, and (e)(2)(xxxiii) and (xxxiv);
0
14. Adding paragraphs (e)(2)(xxxv) through (xxxviii);
0
15. In newly designated paragraph (e)(3):
0
i. Adding the language ``or 4'' after the language ``chapter 3'';
0
ii. Removing the language ``generally'' and adding the language
``including but not limited to'' in its place; and
0
iii. Removing the language ``subject'' and adding the language
``Subject'' in its place;
0
16. Adding paragraphs (e)(4) and (f); and
0
17. Revising newly redesignated paragraph (g).
The revisions and additions read as follows:
Sec. 301.6722-1 Failure to furnish correct payee statements.
(a) * * *
(1) General rule. A penalty of $250 is imposed for each payee
statement (as defined in section 6724(d)(2) and paragraph (e)(2) of
this section) with respect to which a failure (as defined in section
6722(a) and paragraph (a)(2) of this section) occurs. No more than one
penalty will be imposed under this paragraph (a) with respect to a
single payee statement even though there may be more than one failure
with respect to such statement. However, the penalty will apply to
failures on composite substitute payee statements as though each type
of payment and other required information were furnished on separate
statements. A composite substitute payee statement is a single document
created by a filer to reflect several types of payments made to the
same payee. The total amount imposed on any person for all failures
during any calendar year with respect to all payee statements will not
exceed $3,000,000. See section 6722(e) and paragraph (c) of this
section for higher penalties if a failure is due to intentional
disregard of the requirement to furnish timely correct payee
statements. See paragraph (d) of this section for a safe harbor
exception for certain de minimis errors. See paragraph (f) of this
section for inflation adjustments to penalty amounts. See Sec.
301.6724-1(a)(1) for a waiver of the penalty for a failure that is due
to reasonable cause.
(2) * * *
(ii) A failure to include all of the information required to be
shown on a payee statement or the inclusion of incorrect information
(failure to include correct information). A failure to furnish timely
includes a failure to furnish a written statement to the payee in a
statement mailing as required under sections 6042(c), 6044(e), 6049(c),
and 6050N(b), as well as a failure to furnish the statement on a form
acceptable to the Internal Revenue Service (IRS). Except as provided in
paragraph (b) or (d) of this section, a failure to include correct
information encompasses a failure to include the information required
by applicable information reporting statutes or by any administrative
pronouncements issued thereunder (such as regulations, revenue rulings,
revenue procedures, or information reporting forms).
(b) * * *
(2) * * *
(i) A dollar amount, except as provided in paragraph (d) of this
section;
* * * * *
(3) Examples. The provisions of this paragraph (b) may be
illustrated by the following examples, which do not take into account
any possible application of the penalty for intentional disregard under
paragraph (c) of this section, the safe harbor exception for certain de
minimis errors under paragraph (d) of this section, or the reasonable
cause waiver under Sec. 301.6724-1(a):
* * * * *
(c) * * *
(1) Application of section 6722(e). If a failure is due to
intentional disregard of the requirement to furnish timely correct
payee statements, the amount of the penalty must be determined under
paragraph (c)(2) of this section. Whether a failure is due to
intentional disregard of the requirement to furnish timely correct
payee statements is based upon the facts and circumstances surrounding
the failure. The facts and circumstances considered include those under
Sec. 301.6721-1(g)(3), which will apply in determining whether a
failure under this section is due to intentional disregard.
(2) * * *
(i) Paragraph (d) of this section will not apply;
(ii) The $3,000,000 limitation under paragraph (a) of this section
will not apply and the penalty under this paragraph (c)(2) will not be
taken into account in applying the $3,000,000 limitation to penalties
not determined under this paragraph (c)(2);
(iii) The penalty imposed under paragraph (a) of this section will
be $500 or, if greater, the statutory percentage; and
* * * * *
(d) Safe harbor exception for certain de minimis errors--(1) In
general. Except as provided in paragraphs (c) and (d)(3) of this
section, the penalty under section 6722(a) and paragraph (a) of this
section is not imposed for a failure described in section 6722(a)(2)(B)
and paragraph (a)(2)(ii) of this section (failure to include correct
information on payee statement) if the failure relates to an incorrect
dollar amount and is a de minimis error. If the safe harbor in this
paragraph (d) applies to a payee statement and the payee statement was
otherwise correct and timely furnished, no correction is required and,
for purposes of this section, the payee statement is treated as having
been furnished with all of the correct required information.
(2) Definition of de minimis error. For purposes of this paragraph
(d), an error in a dollar amount is de minimis if the difference
between any single amount in error and the correct amount is not more
than $100, and, if the difference is with respect to an amount of tax
withheld, it is not more than $25. For purposes of this paragraph
(d)(2), tax withheld includes any amount required to be shown on an
information return or payee statement (as defined in section 6724(d)(1)
and (2), respectively) withheld under section 3102 or 3402, as well as
any such amount required to be shown on such an information return or
payee statement that is creditable under section 27, 31, 33, or 1474.
(3) Election to override the safe harbor exception--(i) In general.
Except as
[[Page 87706]]
provided in paragraphs (d)(3)(vi) and (vii) of this section, the safe
harbor exception provided for by this paragraph (d) does not apply to
any payee statement if the person to whom the statement is required to
be furnished (the payee) makes an election that the safe harbor not
apply with respect to the statement.
(ii) Timing of election. The payee must elect no later than the
later of 30 days after the date on which the payee statement is
required to be furnished to the payee, or October 15 of the calendar
year, to receive a correct payee statement required to be furnished in
that calendar year without having the safe harbor under paragraph
(d)(1) of this section apply. The date of an election is the date the
election is received by the filer. For purposes of this section, the
provisions of section 7502 relating to timely mailing treated as timely
delivery apply in determining the date an election is considered to be
received by the filer, treating delivery to the filer as if the filer
were an agency, officer, or office under such section. The election
will remain in effect for all subsequent years unless revoked under
paragraph (d)(3)(vii) of this section.
(iii) Manner for making the election. Except as provided in
paragraph (d)(3)(v) of this section, the payee must make the election
by delivering the election in writing to the filer. Except as provided
in paragraph (d)(3)(v) of this section, the written election must be
made in writing on paper. The payee may deliver the election in person,
by mail by United States Postal Service, or by a designated delivery
service as defined under section 7502(f)(2). If the filer has not
otherwise provided an address under paragraph (d)(3)(v) of this
section, the payee must send the written election to the filer's
address appearing on the payee statement furnished by the filer to the
payee with respect to which the election is being made or as directed
by that person upon appropriate inquiry by the payee. The written
election must:
(A) Clearly state that the payee is making the election;
(B) Provide the payee's name, address, and taxpayer identification
number (TIN) (as defined in section 7701(a)(41) of the Internal Revenue
Code) to the filer;
(C) If the payee wants the election to apply only to specific types
of statements, identify the type of payee statement(s) and account
number(s), if applicable, to which the election applies (for example,
Form 1099-DIV, Dividends and Distributions); and
(D) Provide any other information required by the IRS in forms,
instructions, or publications.
(iv) Payee statements to which the election applies. An election by
a payee under paragraph (d)(3)(i) of this section applies to all types
of payee statements the filer is required to furnish to the payee,
unless the payee specifies otherwise on the election under paragraph
(d)(3)(iii)(C) of this section.
(v) Reasonable alternative manner for making the election in cases
of notification by the filer--(A) In general. If the filer satisfies
the requirements of paragraph (d)(3)(v)(B) of this section, and
provides for a reasonable alternative manner as described in paragraph
(d)(3)(v)(E) of this section, a payee may decide to make the election
under paragraph (d)(3)(i) of this section pursuant to that reasonable
alternative manner.
(B) Notification of payee of reasonable alternative manner for
making election. The filer may elect to provide notification to the
payee of a reasonable alternative manner to make the election under
paragraph (d)(3)(i) of this section, as described in paragraph
(d)(3)(v)(E) of this section. To provide a valid notification under
this paragraph (d)(3)(v)(B), the filer must provide notification to the
payee that:
(1) Is in writing (either on paper or in electronic format);
(2) Is timely provided to the payee under paragraph (d)(3)(v)(D) of
this section;
(3) Explains to the payee to whom that filer is required to furnish
a payee statement of the payee's ability to elect, under paragraph
(d)(3)(i) of this section, that the safe harbor exceptions for de
minimis errors not apply, and of the payee's ability to choose to make
the election using the default method under paragraph (d)(3)(iii) of
this section;
(4) Provides an address to which the payee may send an election
under paragraphs (d)(3)(i) and (iii) of this section;
(5) Provides any reasonable alternative manner or manners, as
described in paragraph (d)(3)(v)(E) of this section, that the filer is
making available for the payee to make the election under paragraph
(d)(3)(i) of this section; and
(6) Describes the information required for making the election
described by paragraphs (d)(3)(iii)(A) through (D) of this section.
Solely for purposes of the reasonable alternative manner, the
notification may provide that some or all of the information described
in paragraph (d)(3)(iii)(B) of this section is not required and may
provide that the provision of an account number as referenced in
paragraph (d)(3)(iii)(C) of this section is required if the payee
decides to use the reasonable alternative manner for the election.
(C) Notification of revocation procedures. A notification under
this paragraph (d)(3)(v) may also provide the procedures for making a
revocation of an election under paragraph (d)(3)(vii) of this section.
Solely for purposes of the reasonable alternative manner, the
notification may provide that some or all of the information described
in paragraph (d)(3)(vii)(B) of this section is not required and may
provide that the provision of an account number as referenced in
paragraph (d)(3)(vii)(E) of this section is required if the payee
decides to use a reasonable alternative manner for making a revocation.
(D) Time for providing notification of reasonable alternative
manner for making payee election. A notification under this paragraph
(d)(3)(v) will be timely under paragraph (d)(3)(v)(B)(2) of this
section if:
(1) The notification is provided with, or at the time of, the
furnishing of the payee statement; or
(2) The filer previously provided a valid notification under
paragraph (d)(3)(v) of this section to the payee with, or at the time
of, the furnishing of a payee statement associated with a particular
account, in which case notification will be considered to have been
timely provided with respect to subsequent payee statements associated
with that particular account. If the filer wishes to provide for a
different reasonable alternative manner than a previous reasonable
alternative manner, the filer must provide new notification in
compliance with the timeliness rule of paragraph (d)(3)(v)(D)(1) of
this section, and must accept payee elections under the previous
reasonable alternative manner for a period of at least 60 days after
the receipt of the new notification by the payee.
(E) Reasonable alternative manner. A reasonable alternative manner
described in a notification under paragraph (d)(3)(v)(B) of this
section may include that a payee election under paragraph (d)(3)(i) of
this section may be made electronically (for example, via email or
website) or telephonically. The reasonable alternative manner may not
impose any prerequisite, condition, or time limitation on, or otherwise
limit, the payee's ability to make an election under paragraph
(d)(3)(iii) of this section, except as described in paragraphs
(d)(3)(ii) and (iii) of this section; it may only offer a reasonable
alternative manner or manners for making this election under this
paragraph (d)(3)(v).
(vi) Election not available for certain information. The election
to override
[[Page 87707]]
the safe harbor exception provided for by paragraph (d)(3)(i) of this
section is not available with respect to information that may not be
altered under specific information reporting rules. See, for example,
Sec. 1.6045-4(i)(5) of this chapter.
(vii) Revocation of election. The payee may revoke a prior election
by submitting a revocation to the filer. The effect of a revocation of
a prior election is that the safe harbor for certain de minimis errors
will apply to the payee statements that the payee identifies and that
are furnished or are due to be furnished after the revocation is
received. The revocation will remain in effect until the payee makes a
valid and timely election under paragraph (d)(3)(i) of this section.
The date of a revocation is the date the revocation is received by the
filer. For purposes of this section, the provisions of section 7502
relating to timely mailing treated as timely delivery apply in
determining the date a revocation is considered to be received by the
filer, treating delivery to the filer as if the filer were an agency,
officer, or office under section 7502. The revocation must be made in
the same manner or manners described for making the election, that is
pursuant to either paragraph (d)(3)(iii) or (v) of this section, as the
payee chooses if paragraph (d)(3)(v) of this section is applicable.
Except as provided under paragraph (d)(3)(v)(B)(6) of this section, the
revocation must:
(A) Clearly state that the payee is revoking the payee's prior
election;
(B) Provide the payee's name, address, and TIN to the filer;
(C) Provide the name of the filer;
(D) Identify the type of payee statement(s) (for example, Form
1099-DIV) to which the revocation applies;
(E) Identify the account number(s), if applicable, to which the
revocation applies; and
(F) Provide any other information required by the IRS in forms,
instructions or publications.
(viii) Reasonable cause. See Sec. 301.6724-1(h) for rules relating
to waiver of the section 6722 penalty in cases where the safe harbor
exception provided for by paragraph (d)(1) of this section does not
apply because of an election under paragraph (d)(3)(i) of this section.
(4) Record retention. To facilitate proof of compliance with
reporting and other obligations under the internal revenue laws, filers
must retain records of any election or revocation by the payee under
paragraph (d)(3)(i) or (vii) of this section, respectively, and any
notification made under paragraph (d)(3)(v) of this section for as long
as the contents of the election, revocation, or notification may be
material in the administration of any internal revenue law. For rules
regarding record retention, see section 6001 and Sec. 1.6001-1 of this
chapter. For additional procedures applicable to record retention in
the context of electronic storage, see Rev. Proc. 97-22, 1997-1 C.B.
652, Rev. Proc. 98-25, 1998-1 C.B. 689, and any subsequently published
guidance.
(5) Examples. The provisions of paragraphs (d)(1) through (4) of
this section may be illustrated by the following examples, which do not
address any possible application of the penalty for intentional
disregard under paragraph (c) of this section or the reasonable cause
waiver under Sec. 301.6724-1(a):
(i) Example 1--(A) Facts. Filer W is required to file with the IRS
by February 28, 2024, and furnish to Payee E by February 15, 2024, Form
1099-B Proceeds From Broker and Barter Exchange Transactions, because W
is a broker who sold stocks on behalf of E resulting in proceeds of
$5,000 during calendar year 2023. W properly withheld an amount of
$1,736 under applicable backup withholding rules because E failed to
furnish E's TIN to W. On the Form 1099-B, W reports as follows: Box 1d,
Proceeds, $4,900; and Box 4, Federal income tax withheld, $1,761. W
otherwise correctly and timely files and furnishes the Form 1099-B. E
does not make an election under paragraph (d)(3)(i) of this section.
(B) Analysis. The safe harbor exception for de minimis errors
provided for by paragraph (d)(1) of this section applies, because the
differences between each of the amounts reported in error and the
correct amounts are not more than the applicable limits. The error in
the dollar amount reported in Box 1d, Proceeds, is de minimis because
the difference between the amount in error ($4,900) and the correct
amount ($5,000) is not more than $100; it is exactly $100. The error in
the dollar amount reported in Box 4, Federal income tax withheld, is de
minimis because the $25 difference between the amount in error ($1,761)
and the correct amount ($1,736) is not more than $25, the limit for an
error with respect to an amount reported for tax withheld.
(ii) Example 2--(A) Facts. The facts are the same as in paragraph
(d)(5)(i)(A) of this section (Example 1), except that Filer W reports
$1,710 as the amount in Box 4, Federal income tax withheld.
(B) Analysis. The safe harbor exception for de minimis errors
provided for by paragraph (d)(1) of this section does not apply because
the Form 1099-B contains a failure that is not a de minimis error. The
difference between the amount in error ($1,710) and the correct amount
($1,736) is $26, which is more than the $25 limit for de minimis errors
with respect to an amount reported for tax withheld.
(iii) Example 3--(A) Facts. In 2024, Filer X provides Payee B with
valid notification of a reasonable alternative manner under paragraph
(d)(3)(v) of this section for making the payee election under paragraph
(d)(3)(i) of this section. B timely elects pursuant to the reasonable
alternative manner during 2024. B elects the reasonable alternative
manner with respect to all payee statements that X is required to
furnish to B. In January 2025, X decides to provide for a different,
but also valid, reasonable alternative manner; X provides notification
of this different reasonable alternative manner to B, and B receives
notification of this different reasonable alternative manner, pursuant
to paragraph (d)(3)(v)(B) of this section, on January 16, 2025. B
decides to revoke B's prior election, with respect to the Forms 1099-
DIV that X is required to furnish to B.
(B) Analysis. Under paragraph (d)(3)(vii) of this section, Payee B
may provide the revocation to Filer X in any of three different
manners. First, B may provide the revocation to X in the same manner as
if B were making an election under the default manner of paragraph
(d)(3)(iii) of this section; B may do so at any time. Second, having
received notification from X of the different reasonable alternative
manner on January 16, 2025, B may provide the revocation to X in the
same manner as if B were making an election under the different
reasonable alternative manner pursuant to paragraph (d)(3)(v) of this
section. Third, because X previously provided notification of a
reasonable alternative manner (2024 alternative) before providing
notification of a different reasonable alternative manner on January
16, 2025 (2025 alternative), B may provide the revocation to X in the
same manner as if B were making an election under the previous
reasonable alternative manner (2024 alternative); B may do so for a
period of 60 days after January 16, 2025, pursuant to paragraph
(d)(3)(v)(D)(2) of this section.
(iv) Example 4--(A) Facts. In 2024, Filer Y furnishes, as required,
a Form W-2, Wage and Tax Statement, to Payee C for wages paid in 2023.
The correct version of this Form W-2, without any errors, de minimis or
otherwise, would have reported $15,200 of Federal income tax withheld,
$6,200 of social security tax withheld, $1,450 of Medicare tax
withheld, and $6,000 of
[[Page 87708]]
state income tax withheld. However, the Form W-2 that Y furnishes to C
reports $15,180 of Federal income tax withheld, $6,180 of social
security tax withheld, $1,430 of Medicare tax withheld, and $5,980 of
state income tax withheld. The 2023 Form W-2 does not require reporting
a sum total of tax withheld of all types. C does not make an election
under paragraph (d)(3)(i) of this section.
(B) Analysis. For each of the four amounts of tax withheld, the
difference between the amount of tax withheld that is reported on the
Form W-2 and the correct amount is $20. Under paragraph (d)(2) of this
section, each of these errors is a de minimis error because each is
with respect to an amount of tax withheld and is not more than $25. If
there are no other errors on the Form W-2, the safe harbor exception
for de minimis errors provided for by paragraph (d)(1) of this section
applies. The amounts of tax withheld are not combined in determining
whether an error constitutes a de minimis error, if a combined amount
is not required to be reported on the payee statement.
(v) Example 5--(A) Facts. In 2024, Filer Z furnishes, as required,
a Form W-2 to Payee D for wages paid in 2023. The correct version of
this Form W-2, without any errors, de minimis or otherwise, would have
reported $15,200 of Federal income tax withheld, $6,200 of social
security tax withheld, $1,450 of Medicare tax withheld, $6,000 of state
income tax withheld, and no other taxes withheld. The Form W-2 that Z
furnishes to D reports $15,170 of Federal income tax withheld, $6,220
of social security tax withheld, and the correct amount of Medicare tax
withheld and state income tax withheld.
(B) A single amount of tax withheld reported on the Form W-2,
specifically the amount of Federal income tax withheld, differs from
the correct amount by more than $25. Under paragraph (d)(2) of this
section, this error is not a de minimis error. Therefore, the safe
harbor exception for de minimis errors provided for by paragraph (d)(1)
of this section does not apply. It is irrelevant that the sum total of
taxes withheld reported on the Form W-2 ($28,840) differs from the
correct total of taxes withheld ($28,850) by less than $25.
(6) Voluntary corrections. Regardless of whether the de minimis
error safe harbor in this paragraph (d) provides an exception for not
furnishing a particular corrected payee statement, the corrected payee
statement may be furnished voluntarily if a corresponding information
return reflecting the information reported on the corrected payee
statement is concurrently filed.
(7) Limitations on applicability. The safe harbor exception
provided for by paragraph (d)(1) of this section applies only for the
purposes of payee statement penalties under section 6722. Accordingly,
this safe harbor exception applies to the reporting of amounts on payee
statements, including the reporting of the withholding of tax on payee
statements, but does not apply for purposes of any underlying
requirements to withhold or pay tax. Interest, penalties, and other
additions to tax may be imposed under other sections for under-
withholding or underpaying tax in any amount.
(e) * * *
(1) Payee. See Sec. 301.6721-1(h)(5) for the definition of payee.
(2) Payee statement. For purposes of this section the term payee
statement has the same meaning as payee statement as defined by section
6724(d)(2), including any statement required to be furnished under--
* * * * *
(xxxiii) Section 6055 (relating to information returns reporting
minimum essential coverage);
(xxxiv) Section 6056 (relating to information returns reporting on
offers of health insurance coverage by applicable large employer
members);
(xxxv) Section 6035, other than a statement described in section
6724(d)(1)(D), (relating to basis information with respect to property
acquired from decedents, generally Schedule A of Form 8971, Information
Regarding Beneficiaries Acquiring Property From a Decedent);
(xxxvi) Section 6050Y(a)(2), 6050Y(b)(2), or 6050Y(c)(2) (relating
to certain life insurance contract transactions);
(xxxvii) Section 6226(a)(2) (regarding statements relating to
alternative to payment of imputed underpayment by a partnership) or
under any other provision of this title that provides for the
application of rules similar to section 6226(a)(2); or
(xxxviii) Section 6050Z (relating to reports relating to long-term
care premium statements).
* * * * *
(4) Filer. For purposes of this section the term filer means a
person that is required to furnish a payee statement as defined in
paragraph (e)(2) and (3) of this section under the applicable
information reporting section described in paragraph (e)(2) and (3) of
this section.
(f) Adjustment for inflation. Each of the dollar amounts under
paragraphs (a), (b), and (c) of this section and paragraphs (a), (b),
(d)(1), and (e) of section 6722 will be adjusted for inflation pursuant
to section 6722(f).
(g) Applicability date. This section applies with respect to payee
statements required to be furnished on or after January 1, 2024. See 26
CFR 301.6722-1, as revised April 1, 2023, for rules applicable prior to
January 1, 2024.
0
Par. 7.Section 301.6724-1 is amended by:
0
1. Revising paragraphs (a)(1) and (a)(2)(ii);
0
2. Designating the undesignated paragraph following paragraph
(a)(2)(ii) as paragraph (a)(2)(iii) and revising newly designated
paragraph (a)(2)(iii);
0
3. Revising paragraphs (b) introductory text and (b)(2)(i) and (ii);
0
4. Designating the undesignated paragraph following paragraph
(b)(2)(ii) as paragraph (b)(3);
0
5. In paragraph (c)(1)(iii), adding ``(IRS)'' after ``Internal Revenue
Service'';
0
6. Revising paragraph (c)(3)(ii);
0
7. In paragraphs (c)(4) and (c)(6)(ii), removing ``Internal Revenue
Service'' and adding ``IRS'' in its place;
0
8. Revising paragraphs (e)(1) introductory text and (e)(1)(i) and the
first sentence of paragraph (e)(1)(vi)(A);
0
9. Removing paragraph (e)(1)(vi)(E);
0
10. Redesignating paragraphs (e)(1)(vi)(F) and (G) as paragraphs
(e)(1)(vi)(E) and (F) and revising newly redesignated paragraphs
(e)(1)(vi)(E) and (F);
0
11. In paragraphs (e)(2)(i)(A) and (e)(2)(ii)(C) and (E), removing
``Internal Revenue Service'' and adding ``IRS'' in its place;
0
12. Revising paragraphs (f)(1) introductory text and (f)(1)(i);
0
13. In paragraph (f)(1)(ii), removing ``Internal Revenue Service'' and
adding ``IRS'' in its place;
0
14. Revising paragraphs (f)(5)(i) and (ii), (g), (h), (k), (m)
introductory text, and (m)(1);
0
15. In paragraphs (m)(2) and (3), removing the comma at the end of the
paragraphs and adding a semicolon in its place;
0
16. In paragraph (n), removing ``Internal Revenue Service'' and adding
``IRS'' in its place; and
0
17. Adding paragraph (o).
The revisions and additions read as follows:
Sec. 301.6724-1 Reasonable cause.
(a) * * *
(1) General rule. The penalty for a failure relating to an
information reporting requirement as defined in paragraph (j) of this
section is waived if the failure is due to reasonable cause and is not
due to willful neglect.
(2) * * *
[[Page 87709]]
(ii) The failure arose from events beyond the filer's control
(impediment), as described in paragraph (c) of this section.
(iii) Moreover, the filer must establish that the filer acted in a
responsible manner, as described in paragraph (d) of this section, both
before and after the failure occurred. Thus, if the filer establishes
that there are significant mitigating factors for a failure but is
unable to establish that the filer acted in a responsible manner, the
mitigating factors will not be sufficient to obtain a waiver of the
penalty. Similarly, if the filer establishes that a failure arose from
an impediment but is unable to establish that the filer acted in a
responsible manner, the impediment will not be sufficient to obtain a
waiver of the penalty. See paragraph (g) of this section for the
reasonable cause safe harbor for persons who exercise due diligence.
See paragraph (h) of this section for the reasonable cause safe harbor
after an election under section 6722(c)(3)(B) and Sec. 301.6722-
1(d)(3).
(b) Significant mitigating factors. In order to establish
reasonable cause under this paragraph (b), the filer must satisfy
paragraph (d) of this section and must show that there are significant
mitigating factors for the failure. See paragraph (c)(5) of this
section for the application of this paragraph (b) to failures
attributable to the actions of a filer's agent. The applicable
mitigating factors include, but are not limited to--
* * * * *
(2) * * *
(i) Whether the filer has incurred any penalty under Sec.
301.6721-1, Sec. 301.6722-1, or Sec. 301.6723-1 in prior years for
the failure; and
(ii) If the filer has incurred any such penalty in prior years, the
extent of the filer's success in lessening its error rate from year to
year.
* * * * *
(c) * * *
(3) * * *
(ii) The cost of filing on magnetic media or in electronic form was
prohibitive as determined at least 45 days before the due date of the
returns (without regard to extensions);
* * * * *
(e) * * *
(1) In general. A filer that is seeking a waiver for reasonable
cause under paragraph (c)(6) of this section will satisfy paragraph
(d)(2) of this section with respect to establishing that a failure to
include a TIN on an information return resulted from the failure of the
payee to provide information to the filer (that is, a missing TIN) only
if the filer makes the initial and, if required, the annual
solicitations described in this paragraph (e) (required solicitations).
For purposes of this section, a number is treated as a missing TIN if
the number does not contain nine digits or includes one or more alpha
characters (a character or symbol other than an Arabic numeral) as one
of the nine digits. A solicitation means a request by the filer for the
payee to furnish a correct TIN. See paragraph (f) of this section for
the rules that a filer must follow to establish that the filer acted in
a responsible manner with respect to providing incorrect TINs on
information returns. See paragraph (e)(1)(vi)(A) of this section for
alternative solicitation requirements. See paragraph (g) of this
section for the safe harbor due diligence rules.
(i) Initial solicitation. An initial solicitation for a payee's
correct TIN must be made at the time an account is opened. The term
account includes accounts, relationships, and other transactions.
However, a filer is not required to make an initial solicitation under
this paragraph (e)(1)(i) with respect to a new account if the filer has
the payee's TIN and uses that TIN for all accounts of the payee. For
example, see Sec. 31.3406(h)-3(a) of this chapter. If the account is
opened in person, the initial solicitation may be made by oral or
written request, such as on an account creation document. If the
account is opened by mail, telephone, or other electronic means, the
TIN may be requested through such communications. If the account is
opened by the payee's completing and mailing an application furnished
by the filer that requests the payee's TIN, the initial solicitation
requirement is considered met. If a TIN is not received as a result of
an initial solicitation, the filer may be required to make additional
solicitations (annual solicitations).
* * * * *
(vi) * * *
(A) The solicitation requirements under this paragraph (e) do not
apply to the extent an information reporting provision under which a
return, as defined in paragraph (h) of Sec. 301.6721-1, is filed
provides specific requirements relating to the manner or the time
period in which a TIN must be solicited. * * *
* * * * *
(E) A filer is not required to make annual solicitations by mail on
accounts with respect to which the filer has an undeliverable address,
that is, where other mailings to that address have been returned to the
filer because the address was incorrect and no new address has been
provided to the filer.
(F) Except as provided in paragraphs (e)(1)(vi)(A) and (C) of this
section, no more than two annual solicitations are required under this
paragraph (e) in order for a filer to establish reasonable cause.
* * * * *
(f) * * *
(1) In general. A filer that is seeking a waiver for reasonable
cause under paragraph (c)(6) of this section will satisfy paragraph
(d)(2) of this section with respect to establishing that a failure
resulted from incorrect information provided by the payee or any other
person (that is, inclusion of an incorrect TIN) on an information
return only if the filer makes the initial and annual solicitations
described in this paragraph (f). See paragraph (e)(1) of this section
for the definition of the term solicitation. See paragraph (f)(5)(i) of
this section for alternative solicitation requirements. See paragraph
(g) of this section for the safe harbor due diligence rules.
(i) Initial solicitation. An initial solicitation for a payee's
correct TIN must be made at the time the account is opened. The term
account includes accounts, relationships, and other transactions.
However, a filer is not required to make an initial solicitation under
this paragraph (f)(1)(i) with respect to a new account if the filer has
the payee's TIN and uses that TIN for all accounts of the payee. For
example, see Sec. 31.3406(h)-3(a) of this chapter. No additional
solicitation is required after the filer receives the TIN unless the
IRS or, in some cases, a broker notifies the filer that the TIN is
incorrect. Following such notification the filer may be required to
make an annual solicitation to obtain the correct TIN as provided in
paragraphs (f)(1)(ii) and (iii) of this section.
* * * * *
(5) * * *
(i) The solicitation requirements under this paragraph (f) do not
apply to the extent that an information reporting provision under which
a return, as defined in Sec. 301.6721-1(h), is filed provides specific
requirements relating to the manner or the time period in which a TIN
must be solicited. In that event, the requirements of this paragraph
(f) will be satisfied only if the filer complies with the manner and
time period requirement under the specific information reporting
provisions and this paragraph (f), to the extent applicable.
(ii) An annual solicitation is not required to be made for a year
under this paragraph (f) with respect to an account if no payments are
made to the
[[Page 87710]]
account for such year or if no return as defined in Sec. 301.6721-1(h)
is required to be filed for the account for such year.
* * * * *
(g) Due diligence safe harbor--(1) In general. A filer may
establish reasonable cause with respect to a failure relating to an
information reporting requirement as described in paragraph (j) of this
section if the filer exercises due diligence with respect to failures
described in sections 6721 through 6723. Paragraphs (g)(2) through (7)
of this section provide special rules on the exercise of due diligence
with respect to TINs for an exception to a penalty under sections 6721
through 6723 for--
(i) A failure to provide a correct TIN on any--
(A) Information return as defined in Sec. 301.6721-1(h);
(B) Payee statement as defined in Sec. 301.6722-1(e)(2) and (3);
or
(C) Document as described in Sec. 301.6723-1(a)(4); or
(ii) The failure merely to provide a TIN as described in Sec.
301.6723-1(a)(4)(ii).
(2) General rule. A filer is not subject to a penalty for failure
to provide the payee's correct TIN on an information return, if the
payee has certified, under penalties of perjury, that the TIN provided
to the filer was the payee's correct TIN, and the filer included such
TIN on the information return before being notified by the IRS (or a
broker) that such TIN is incorrect.
(3) Due diligence defined for accounts opened and instruments
acquired after December 31, 1983--(i) In general. For a filer of a
reportable interest or dividend payment (other than in a window
transaction) to be considered to have exercised due diligence in
furnishing the correct TIN of a payee with respect to an account opened
or an instrument acquired after December 31, 1983 (that is, an account
or instrument that is not a pre-1984 account nor a window transaction),
the filer must use a TIN provided by the payee under penalties of
perjury on information returns filed with the IRS. Therefore, if a
filer permits a payee to open an account without obtaining the payee's
TIN under penalties of perjury and files an information return with the
IRS with a missing or an incorrect TIN, the filer will be liable for
the $250 penalty for the year with respect to which such information
return is filed. However, in its administrative discretion, the IRS
will not enforce the penalty with respect to a calendar year if the
certified TIN is obtained after the account is opened and before
December 31 of such year, provided that the filer exercises due
diligence in processing such number, that is, the filer uses the same
care in processing the TIN provided by the payee that a reasonably
prudent filer would use in the course of the filer's business in
handling account information such as account numbers and balances.
(ii) Notification of incorrect TIN. Once notified by the IRS (or a
broker) that a number is incorrect, a filer is liable for the penalty
for all prior years in which an information return was filed with that
particular incorrect number if the filer has not exercised due
diligence with respect to such years. A pre-existing certified TIN does
not constitute an exercise of due diligence after the IRS or a broker
notifies the filer that the number is incorrect unless the filer
undertakes the actions described in Sec. 31.3406(d)-5(d)(2)(i) of this
chapter with respect to accounts receiving reportable payments
described in section 3406(b)(1) and reported on information returns
described in sections 6724(d)(1)(A)(i) through (iv).
(iii) Inadvertent processing. A filer described in this paragraph
(g)(3) is liable for the penalty if the filer obtained a certified TIN
for a payee but inadvertently processed the TIN or name incorrectly on
the information return unless the filer exercised that degree of care
in processing the TIN and name and in furnishing it on the information
return that a reasonably prudent filer would use in the course of the
filer's business in handling account information, such as account
numbers and account balances.
(4) Instruments not transferred with assistance of broker--(i) In
general. If a filer files an information return with a missing or an
incorrect TIN with respect to an instrument transferred without the
assistance of a broker, the filer will be considered to have exercised
due diligence with respect to a readily tradable instrument that is not
part of a pre-1984 account with the filer if the filer records on its
books a transfer in which the filer was not a party. This paragraph
(g)(4)(i) applies until the calendar year in which the filer receives a
certified TIN from the payee.
(ii) Solicitation of TIN not required. A filer described in
paragraph (g)(4)(i) of this section is not required to solicit the TIN
of a payee of an account with a missing TIN in order to be considered
as having exercised due diligence in a subsequent calendar year under
the rule set forth in paragraph (g)(4)(i) of this section.
(iii) Payee provides incorrect TIN. If a payee provides a TIN
(whether or not certified) to a filer described in paragraph (g)(4)(i)
of this section who records on its books a transfer in which it was not
a party, the filer is considered to have exercised due diligence under
the rule set forth in paragraph (g)(4)(i) of this section if the
transfer is accompanied with a TIN provided that the filer uses the
same care in processing the TIN provided by a payee that a reasonably
prudent filer would use in the course of the filer's business in
handling account information, such as account numbers and account
balances. Thus, a filer will not be liable for the penalty if the filer
uses the TIN provided by the payee on information returns that it
files, even if the TIN provided by the payee is later determined to be
incorrect. However, a filer will not be considered as having exercised
due diligence under paragraph (g)(4)(i) of this section after the IRS
or a broker notifies the filer that the number is incorrect unless the
filer undertakes the required additional actions described in paragraph
(g)(2) of this section.
(5) Filer incurred an undue hardship--(i) In general. A filer of a
post-1983 account or instrument is not liable for a penalty under
section 6721(a) for filing an information return with a missing or an
incorrect TIN if the IRS determines that the filer could have satisfied
the due diligence requirements but for the fact that the filer incurred
an undue hardship. An undue hardship is an extraordinary or unexpected
event such as the destruction of records or place of business of the
filer by fire or other casualty (or the place of business of the
filer's agent who under a pre-existing written contract had agreed to
fulfill the filer's due diligence obligations with respect to the
account subject to the penalty and there was no means for the
obligations to be performed by another agent or the filer). Undue
hardship will also be found to exist if the filer could have met the
due diligence requirements only by incurring an extraordinary cost.
(ii) Only IRS makes undue hardship determinations. A filer must
obtain a determination from the IRS to establish that the filer
satisfies the undue hardship exception to the penalty under section
6721(a) for the failure to include the correct TIN on an information
return for the year with respect to which the filer is subject to the
penalty. A determination of undue hardship may be established only by
submitting a written statement to the IRS signed under penalties of
perjury that sets forth all the facts and circumstances that make an
affirmative showing that the filer could have satisfied the due
diligence requirements but for the occurrence of an undue hardship.
Thus,
[[Page 87711]]
the statement must describe the undue hardship and make an affirmative
showing that the filer either was in the process of exercising or stood
ready to exercise due diligence when the undue hardship occurred. A
filer may request an undue hardship determination by submitting a
written statement to the address provided with the notice proposing
penalty assessment (for example, Notice 972CG) or the notice of penalty
assessment (for example, CP15 or CP215), or as otherwise directed by
the IRS in forms, instructions, or publications.
(6) Acquisitions of pre-1984 accounts or instruments--(i) In
general. A pre-1984 account or instrument of a filer that is exchanged
for an account or instrument of another filer pursuant to a statutory
merger of the other filer or the acquisition of the accounts or
instruments of such filer is not transformed into a post-1983 account
or instrument if the merger or acquisition occurs after December 31,
1983, because the exchange occurs without the participation of the
payee.
(ii) Establishing due diligence was exercised for accounts or
instruments. The acquiring taxpayer described in this paragraph (g)(6)
may rely upon the business records and past procedures of the merged
filer or the filer whose accounts or instruments were acquired in order
to establish that due diligence has been exercised on the acquired pre-
1984 and post-1983 accounts or instruments to avoid the penalty under
section 6721(a) with respect to information returns that have been or
will be filed.
(7) Limited reliance on certain pre-2001 rules. A filer may rely on
the due diligence rules set forth in 26 CFR 35a.9999-1, 35a.9999-2, and
35a.9999-3 in effect prior to January 1, 2001 (see 26 CFR 35a.9999-1,
35a.9999-2, and 35a.9999-3, revised April 1, 1999), solely for the
definitions of terms or phrases used in this paragraph (g).
(h) Reasonable cause safe harbor after election under section
6722(c)(3)(B). A filer may establish reasonable cause with respect to a
failure relating to an information reporting requirement as described
in paragraph (j) of this section under this paragraph (h) if the
failure is a result of an election under Sec. 301.6722-1(d)(3)(i) and
the presence of a de minimis error or errors as described in sections
6721(c)(3) and 6722(c)(3) and Sec. Sec. 301.6721-1(e) and 301.6722-
1(d) on a filed information return or furnished payee statement. This
paragraph (h) applies only if the safe harbor exceptions provided for
by Sec. 301.6721-1(e)(1) or Sec. 301.6722-1(d)(1) would have applied,
but for an election under Sec. 301.6722-1(d)(3)(i). To establish
reasonable cause and not willful neglect under this paragraph (h), the
filer must file a corrected information return or furnish a corrected
payee statement, or both, as applicable, within 30 days of the date of
the election under Sec. 301.6722-1(d)(3)(i). Where specific rules
provide for additional time in which to furnish a corrected payee
statement and file a corrected information return, the 30-day rule does
not apply and the specific rules will apply. See for example Sec. Sec.
31.6051-1(c) through (d) and 31.6051-2(b). If the filer rectifies the
failure outside of this 30-day period, the determination of reasonable
cause will be on a case-by-case basis.
* * * * *
(k) Examples. The provisions of this section may be illustrated by
the following examples:
(1) Example 1--(i) Facts. On August 1, 2023, Individual A, an
independent contractor, establishes a relationship (account) with
Institution L, which pays A amounts reportable under section 6041. When
A opens the account L requests that A supply his TIN on the account
creation document. A fails to provide his TIN. On October 2, 2023, L
mails a solicitation for A's TIN that satisfies the requirement of
paragraph (e)(1)(ii) of this section. A does not provide a TIN to L
during 2023. L timely files an information return subject to section
6721, that does not contain A's TIN, for payments made during the 2023
calendar year with respect to A's account. A penalty is imposed on L,
pursuant to Sec. 301.6721-1(a)(2), for L's failure to file a correct
information return because A's TIN was not shown on the return. The
penalty will be waived, however, if L establishes that the failure was
due to reasonable cause as defined in this section.
(ii) Analysis. To establish reasonable cause under this section, L
must satisfy both paragraphs (c)(6) and (d) of this section. The
criteria for obtaining a waiver under paragraphs (c)(6) and (d) of this
section are as follows:
(A) L acted in a responsible manner in attempting to satisfy the
information reporting requirement as described in paragraph (d) of this
section; and
(B) L demonstrates that the failure arose from events beyond L's
control, as described in paragraph (c)(6) of this section.
(iii) Analysis (continued). Pursuant to paragraph (d)(2) of this
section, L may demonstrate that it acted in a responsible manner only
by complying with paragraph (e) of this section. Paragraph (e) of this
section requires a filer to request a TIN at the time the account is
opened (the initial solicitation) and, if the filer does not receive
the TIN at that time, to solicit the TIN on or before December 31 of
the year the account is opened (for accounts opened before December) or
January 31 of the following year (for accounts in the preceding
December) (the annual solicitation). Because L has performed these
solicitations within the time and in the manner prescribed by paragraph
(e) of this section, L has acted in a responsible manner as described
in paragraph (d) of this section. L satisfies paragraph (c)(6) of this
section because under the facts, L can show that the failure was caused
by A's failure to provide a TIN, an event beyond L's control. As a
result, L has established reasonable cause under paragraph (a)(2) of
this section. Therefore, the penalty imposed under Sec. 301.6721-
1(a)(2) for the failure on the 2023 information return is waived. See
section 3406(a)(1)(A), which requires L to impose backup withholding on
reportable payments to A if L has not received A's TIN.
(2) Example 2--(i) Facts. On August 1, 2023, Individual B opens an
account with Bank M, which pays B interest reportable under section
6049. When B opens the account, M requests that B supply his TIN on the
account creation document. B provides his TIN to M. On February 28,
2024, M includes the TIN that B provided on the Form 1099-INT, Interest
Income, for the 2023 calendar year. In October 2024 the IRS, pursuant
to section 3406(a)(1)(B), notifies M that the 2023 return filed for B
contains an incorrect TIN. In April 2025 a penalty is imposed on M,
pursuant to Sec. 301.6721-1(a)(2), for M's failure to file a correct
information return for the 2023 calendar year, that is, the return did
not contain B's correct TIN. The penalty will be waived, however, if M
establishes that the failure was due to reasonable cause as defined in
this section.
(ii) Analysis. To establish reasonable cause under this section, M
must satisfy the criteria in both paragraphs (c)(6) and (d) of this
section. Pursuant to paragraph (d)(2) of this section, M can
demonstrate that it acted in a responsible manner only if M complies
with paragraph (f) of this section. Paragraph (f) of this section
requires a filer to request a TIN at the time the account is opened, an
initial solicitation. Under paragraph (f)(4) of this section the
initial solicitation relates to failures on returns filed for the year
an account is opened. Because M performed the initial solicitation in
2023 in the time and manner prescribed
[[Page 87712]]
in paragraph (f)(1)(i) of this section and reflected the TIN received
from B on the 2023 return as required by paragraph (f)(1)(iv) of this
section, M has acted in a responsible manner as described in paragraph
(d) of this section. M satisfies paragraph (c)(6) of this section
because, under the facts, M can show that the failure was caused by B's
failure to provide a correct TIN, an event beyond M's control. As a
result, M has established reasonable cause under paragraph (a)(2) of
this section. Therefore, the penalty imposed under Sec. 301.6721-
1(a)(2) for the failure on the 2023 information return is waived. See
section 3406(a)(1)(B), which requires M to impose backup withholding on
reportable payments to B if M has not received B's correct TIN.
(3) Example 3--(i) Table.
Table 1 to Paragraph (k)(3)(i)
----------------------------------------------------------------------------------------------------------------
2023 2/2024 10/2024 2/2025
----------------------------------------------------------------------------------------------------------------
Account opened (solicits TIN)........ 2023 return filed...... B-notice with respect 2024 return filed.
to 2023 return.
----------------------------------------------------------------------------------------------------------------
4/2025 10/2025................ 2/2026................. 4/2026
----------------------------------------------------------------------------------------------------------------
6721 penalty notice for 2023 return.. B-notice with respect 2025 return filed...... 6721 penalty notice for
to 2024 return. 2024.
----------------------------------------------------------------------------------------------------------------
(ii) Facts. The facts are the same as in paragraph (k)(2)(i) of
this section (Example 2). Under Sec. 31.3406(d)-5(d)(2)(i) of this
chapter and paragraph (f)(3) of this section, within 15 days of the
October 2024 notification of the incorrect TIN from the IRS, M solicits
the correct TIN from B. B fails to respond. M timely files the return
for 2024 with respect to the account setting forth B's incorrect TIN.
In October 2025 the IRS notifies M, pursuant to section 3406(a)(1)(B),
that the 2024 return contains an incorrect TIN. In April 2026, a
penalty is imposed on M pursuant to Sec. 301.6721-1(a)(2) for M's
failure to include B's correct TIN on the return for 2024. The penalty
will be waived, if M establishes that the failure was due to reasonable
cause as defined in this section.
(iii) Analysis. M must satisfy the reasonable cause criteria in
paragraphs (c)(6) and (d) of this section. M may demonstrate that it
acted in a responsible manner as required under paragraph (d) of this
section only by complying with paragraph (f) of this section. Paragraph
(f) of this section requires a filer to make an initial solicitation
for a TIN when an account is opened. Further, a filer must make an
annual solicitation for a TIN by mail within 15 business days after the
date that the IRS notifies the filer of an incorrect TIN pursuant to
section 3406(a)(1)(B). M made the initial solicitation for the TIN in
2023 and, after being notified of the incorrect TIN in October 2024,
the first annual solicitation within the time and manner prescribed by
Sec. 31.3406(d)-5(d)(2)(i) of this chapter and paragraphs (f)(1)(ii)
and (f)(2) of this section. M acted in a responsible manner. M
satisfies paragraph (c)(6) of this section because, under the facts, M
can show that the failure was caused by B's failure to provide his
correct TIN, an event beyond M's control. As a result M has established
reasonable cause under paragraph (a)(2) of this section. Therefore, the
penalty imposed under Sec. 301.6721-1(a)(2) for the failure on the
2024 return is waived due to reasonable cause.
(4) Example 4--(i) Table.
Table 2 to Paragraph (k)(4)(i)
----------------------------------------------------------------------------------------------------------------
2023 2/2024 10/2024 2/2025
----------------------------------------------------------------------------------------------------------------
Account opened (solicits TIN)........ 2023 return filed...... B-notice with respect 2024 return filed.
to 2023 return.
----------------------------------------------------------------------------------------------------------------
4/2025 10/2025................ 2/2026................. 4/2026
----------------------------------------------------------------------------------------------------------------
6721 penalty notice for 2023 return.. B-notice with respect 2025 return filed...... 6721 penalty notice for
to 2024 return. 2024 return.
----------------------------------------------------------------------------------------------------------------
(ii) Facts. The facts are the same as in paragraph (k)(3)(ii) of
this section (Example 3). M timely solicits B's TIN in October 2025,
which B fails to provide. M files the return for 2025 with the
incorrect TIN. In April 2027 the IRS informs M that the 2025 return
contains an incorrect TIN. M does not solicit a TIN from B in 2026 and
files a return for 2026 with B's incorrect TIN. M seeks a waiver of the
penalty under Sec. 301.6721-1(a)(2) for reasonable cause.
(iii) Analysis. M must satisfy the reasonable cause criteria in
paragraphs (c)(6) and (d) of this section. Because M made the initial
and two annual solicitations as required by paragraph (f) of this
section, M has demonstrated that it acted in a responsible manner and
is not required to solicit B's TIN in 2026. See paragraph (f)(5)(vi) of
this section. M satisfies paragraph (c)(6) of this section because,
under the facts, M can show that the failure was caused by B's failure
to provide his correct TIN, an event beyond M's control. Therefore, M
has established reasonable cause under paragraph (a)(2) of this
section.
(5) Example 5--(i) Facts. In 2023, Mortgage Finance Company N lends
money to C to purchase property in a transaction subject to reporting
under section 6050H. As part of the transaction, C gives N a promissory
note providing for repayment of principal and the payment of interest.
At the time C incurs the obligation N requests C's TIN, as required
under Sec. 1.6050H-2(f) of this chapter. C fails to provide the TIN as
required by Sec. 1.6050H-2(f) of this chapter. N sends solicitations
by mail in 2023 and 2024 for the missing TIN, which C fails to provide.
However, for 2025 N fails to send the solicitation required by Sec.
1.6050H-2(f) of this chapter. N files returns for the 2023, 2024, and
2025 calendar years pursuant to section 6050H without C's TIN.
[[Page 87713]]
(ii) Analysis. Although N made the initial and the first annual
solicitations in 2023 and the second annual solicitation in 2024, N did
not solicit the TIN in 2025 as required under section 6050H, which
requires continued annual solicitations until the TIN is obtained.
Therefore, under paragraph (e)(1)(vi)(A) of this section the penalty
imposed under Sec. 301.6721-1(a) for the 2025 information return is
not waived.
(6) Example 6--(i) Table.
Table 3 to Paragraph (k)(6)(i)
----------------------------------------------------------------------------------------------------------------
10/2023 2/2024 10/2024 2/2025
----------------------------------------------------------------------------------------------------------------
Account opened. (solicits TIN)....... 2023 return filed...... B-notice with respect 2024 return filed.
to 2023 return.
----------------------------------------------------------------------------------------------------------------
4/2025 10/2025................ 2/2026................. 4/2026
----------------------------------------------------------------------------------------------------------------
6721 penalty notice for 2023 return.. B-notice with respect 2025 return filed...... 6721 penalty notice for
to 2024 return. 2024 return.
----------------------------------------------------------------------------------------------------------------
(ii) Facts. On October 2, 2023, Individual E opens an account with
Institution R, which pays E amounts reportable under section 6049. When
E opens the account, R requests that E supply his TIN on an account
creation document, which E does. Pursuant to paragraph (f)(1)(iv) of
this section, R uses the TIN furnished by E on the information return
filed for the 2023 calendar year. In October 2024 the IRS notifies R,
pursuant to section 3406(a)(1)(B), that the information return filed
for E for the 2023 calendar year contained an incorrect TIN. At the
time R receives this notification, E's account contains the incorrect
TIN. On December 31, 2024, R telephones E pursuant to paragraphs (f)(2)
and (e)(2)(ii) of this section and receives different TIN information
from E. R uses this information on the return that it files timely for
E for the 2024 calendar year, that is, in February 2025. In April 2025,
the IRS notifies R, pursuant to Sec. 301.6721-1(a)(2), that the
information return filed for the 2023 calendar year contains an
incorrect TIN. The penalty will be waived, however, if R establishes
the failure was due to reasonable cause as defined in this section.
(iii) Analysis. To establish reasonable cause under this section, R
must satisfy the criteria in both paragraphs (c)(6) and (d)(2) of this
section. Pursuant to paragraph (d)(2) of this section, R can
demonstrate that it acted in a responsible manner only if it complies
with paragraph (f) of this section. R solicited E's TIN at the time the
account was opened (initial solicitation). Under paragraphs (d)(2) and
(f)(4) of this section, the initial solicitation relates to failures on
returns filed for the year in which an account is opened (that is,
2023) and for subsequent years until the calendar year in which the
filer receives a notification of an incorrect TIN pursuant to section
3406. Because E failed to provide the correct TIN upon request, the
failure arose from events beyond R's control as described in paragraph
(c)(6) of this section. Therefore, the penalty with respect to the
failure on the 2023 calendar year information return is waived due to
reasonable cause.
(7) Example 7--(i) Facts. The facts are the same as in paragraph
(k)(6)(ii) of this section (Example 6). In April 2026 the IRS notifies
R, pursuant to Sec. 301.6721-1(a)(2), that the information return
filed for the 2024 calendar year for E contained an incorrect TIN.
(ii) Analysis. To establish reasonable cause for the failure under
this section, R must satisfy the criteria in both paragraphs (c)(6) and
(d)(2) of this section. Pursuant to paragraph (d)(2) of this section, R
may establish that it acted in a responsible manner only by complying
with paragraph (f) of this section. Pursuant to paragraph (f)(1)(ii) of
this section, R must make an annual solicitation after being notified
of an incorrect TIN if the payee's account contains the incorrect TIN
at the time of the notification. Paragraph (f)(3) of this section
provides that if the filer is notified, pursuant to section
3406(a)(1)(B), the time and manner of making an annual solicitation is
that required under Sec. 31.3406(d)-5(g)(1)(ii) of this chapter.
Section 31.3406(d)-5(g)(1)(ii) of this chapter requires R to notify E
by mail within 15 business days after the date of the notice from the
IRS, which R failed to do. As a result, R has failed to act in a
responsible manner with respect to the failure on the 2024 information
return, and the penalty will not be waived due to reasonable cause.
(8) Example 8--(i) Facts. On January 31, 2024, Institution Q timely
furnishes Form 1099-MISC, Miscellaneous Information, to Individual F.
Also on January 31, 2024, Q timely files a corresponding Form 1099-MISC
with the IRS. On March 15, 2024, Q becomes aware of de minimis errors
(within the meaning of Sec. 301.6722-1(d)(2)) made on the Form 1099-
MISC furnished to F and filed with the IRS. On March 20, 2024, F makes
an election under Sec. 301.6722-1(d)(3)(i) with respect to the Form
1099-MISC that Q furnished to F. Q furnishes a corrected Form 1099-MISC
to F and files a corrected Form 1099-MISC with the IRS by April 19,
2024, which date is 30 days from March 20, 2024.
(ii) Analysis. The election by F and the presence of de minimis
errors on the Forms 1099-MISC make the penalties under sections 6721
and 6722 applicable to Q. See Sec. Sec. 301.6721-1(e)(3) and 301.6722-
1(d)(3). Q, however, rectified the failures within 30 days of March 20,
2024, the date F made the election under Sec. 301.6722-1(d)(3)(i) with
respect to the Form 1099-MISC that Q furnished to F. Therefore, under
paragraph (h) of this section, Q is considered to have established
reasonable cause, and under section 6724 and paragraph (a)(1) of this
section the penalties under sections 6721 and 6722 are waived.
(9) Example 9--(i) Facts. The facts are the same as in paragraph
(k)(8)(i) of this section (Example 8), except that Q does not become
aware of de minimis errors made on the Form 1099-MISC furnished to F
and filed with the IRS until June 26, 2024. Additionally, Q furnishes
the corrected Form 1099-MISC to F and files the corrected Form 1099-
MISC with the IRS after June 26, 2024, but by July 26, 2024, which date
is 30 days from June 26, 2024.
(ii) Analysis. As in the example in paragraph (k)(8) of this
section, the election by F and the presence of de minimis errors on the
Forms 1099-MISC make the penalties under sections 6721 and 6722
applicable to Q. Additionally, because Q did not furnish a corrected
Form 1099-MISC to F and file a corrected Form 1099-MISC with the IRS
within 30 days of the date of F's election under Sec. 301.6722-
1(d)(3)(i), paragraph (h) of this section does not apply. However, Q
may be able to demonstrate reasonable cause under the provisions of
paragraph (a) of this
[[Page 87714]]
section. As part of this demonstration, for example, Q may be able to
demonstrate that Q acted in a responsible manner under paragraph (d)(1)
of this section by rectifying the failure (that is, the de minimis
errors) within 30 days of discovery.
* * * * *
(m) Procedure for seeking a waiver. In seeking an administrative
determination that the failure was due to reasonable cause and not
willful neglect, the filer must submit a written statement to the
address provided with the notice proposing penalty assessment (for
example, Notice 972CG) or the notice of penalty assessment (for
example, CP15 or CP215), or as otherwise directed by the IRS in forms,
instructions or publications. The statement must--
(1) State the specific provision under which the waiver is being
requested, that is, paragraph (b) or under paragraphs (c)(2) through
(6) or paragraph (h) of this section;
* * * * *
(o) Applicability dates--(1) In general. Except as provided in
paragraphs (o)(2) and (3) of this section, this section applies with
respect to information returns required to be filed and payee
statements required to be furnished on or after January 1, 2024. See 26
CFR 301.6724-1, as revised April 1, 2023, for rules applicable prior to
January 1, 2024, except as provided in paragraphs (o)(2) and (3) of
this section.
(2) Paragraph (g). Paragraph (g) of this section applies with
respect to information returns as defined in section 6724(d)(1)
required to be filed, payee statements as defined in section 6724(d)(2)
required to be furnished, and specified information as described in
section 6724(d)(3) required to be reported on or after January 1, 2024.
See 26 CFR 301.6724-1(g), as revised April 1, 2023, for rules
applicable prior to January 1, 2024.
(3) Paragraph (h). Paragraph (h) of this section applies with
respect to information returns required to be filed and payee
statements required to be furnished after January 4, 2017.
Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
Approved: November 29, 2023.
Lily L. Batchelder,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2023-27283 Filed 12-18-23; 8:45 am]
BILLING CODE 4830-01-P
</pre></body>
</html>Indexed from Federal Register on December 19, 2023.
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