It was just a week ago that the IRS held their Affordable Care Act Information Returns Program (AIR) meeting, and with it came the annual publication (1586) highlighting several procedures and good practices for employers utilizing the AIR system. The working group meeting covered many topics, including successes and technical margins of error when using the AIR program for filing, as well corrections information and any non-technical inquiries. While errors and penalties remain a hot topic this tax season, the AIR publication delves into a few issues that can be easily resolved, including good faith and reasonable cause. But what do they mean?
With filing, a “good faith effort” is almost exactly what it states. Filing returns in a timely and seemingly accurate fashion, with error correction are the basic premises for a good faith effort. Should errors abound, penalties may arrive. The IRS provides as a “good faith effort” example whereby Tax Identification Numbers (TIN) are missing or a TIN doesn’t match your registered name (and vice versa). In this instance, you must prove “reasonable cause,” meaning either the severity of the errors was lessened by a previously stellar track record of filing or acts of God preventing access to accurate records.
While electronic filing has been extended to June 30, 2016, corrections are to be filed as soon as possible but not prior to filing. If corrections aren’t provided, penalties may be tacked on once again.
The severity of said penalties for missing or incorrect names/TINs depends on the lapse of time in dealing with incorrect information. Corrections filed within 30 days following electronic reporting (in this case, July 30, 2016), the penalty is $50 per information return. Large businesses are capped at a maximum penalty of $529,500 for the year, with small businesses facing a maximum penalty of $185,000 for the year.
Corrections filed by November 1, 2016 come with $100 penalty per return, with large businesses maxing at $1,589,000 and small business maxing at $529,500. Any corrections filed after November 1, 2016 see a staggering $260 per return, with large businesses maxing at $3,178,500 and small business at $1,059,500. If it’s proven that errors were intentionally filed and corrections were ignored, then penalties include $520 per return with no limit to penalties for the year.
With information reporting, it’s more than just proofing and filing with good faith. It is understanding that the ramifications for purposely delaying can run your company into the red with penalties. The good news is that it’s all preventable.