Penalties in sections of the Internal Revenue Code relating to the failure to timely file correct and complete information in a return as well as the failure to timely distribute correct and complete statements were substantially increased – by up to 150% – with the passage on June 29 of the Trade Preferences Extension Act of 2015 (“TPE Act”).
The penalties are related to IRC Sections 6721 and 6722. Section 6721 pertains to the failure to file correct and complete information in a return. Section 6722 pertains to the failure to furnish complete and correct information in the payee statements. Section 806 of the TPE Act substantially increases the penalties set forth separately under these IRC Sections.
The penalty for failing to timely file and/or failing to file correct and complete information will be $250 per return (previously $100.) The cap on all such failures is raised to $3,000,000 (previously $1,500,000) under Section 6721.
This increase also applies to penalty for the failure to furnish complete and correct information in the payee statements, under Section 6722.
Under provisions of Section 6721 and 6722 for reduced penalties if corrections are made within 30 days after the required filing date, those lower penalties are now $50 per return (previously $30), with a maximum of $500,000 (previously $250,000).
The reduced penalties under each Section 6721 and 6722 where the corrections are made by August 1 is increased to $100 (previously $60) per return, with a maximum of $1,500,000 (previously $500,000).
The lower limitations under each Section 6721 and 6722 for persons with gross receipts of not more than $5,000,000 have also been increased. Such persons are subject to a cap of (a) $1,000,000 (previously $500,000) for failing to timely file and/or failing to file correct and complete information, (b) $175,000 (previously $75,000) for corrections made within 30 days of filing deadline, and (c) $500,000 (previously $200,000) for corrections made by August 1.
Penalties under Section 6721 and 6722 in case of intentional disregard as would be applicable to ACA reporting is increased to $500 per return (previously $250), and no cap applies.
These penalties apply with respect to returns and statements required to be filed after December 31, 2015.
The timing of when these penalties will impact ACA reporting appears to be after December 31, 2016. This is in view of the IRS’s previously announced availability of short-term relief for 2015 from ACA reporting penalties under Sections 6721 and 6722 if the employer can make a showing of good faith effort to comply with the ACA reporting requirements.
The penalties may also be abated based on reasonable cause and not due to willful neglect.
Presumably, the IRS could continue with that short-term relief and allow the TPE Act to go into effect with respect to ACA reporting penalties starting the following year, after December 31, 2016.