As a result of new legislation (the “Trade Preferences Extension Act of 2015,” passed by congress and signed by President Obama into law on June 29, 2015), penalties for failure to file information returns or to provide payee statements have been increased significantly.   The new penalties are effective for 2015 forms that are due in early 2016.

Under Internal Revenue Code (IRC) Sections 6721 and 6722, the penalty applies to both failing to timely file a correct information return with the IRS (IRC Section 6721), and failing to furnish the payee a statement (IRC Section 6722).  A penalty can be abated, however, if such failure is due to reasonable cause and not to willful neglect under the IRC Section 6724.

The most commonly used information returns for reporting certain types of income and transactions include W-2, W-2G, Form 1099-series, Form 1098, as well as the newly required ACA Form 1094 and 1095-series related to qualifying health insurance coverage and employer share responsibility.

Note that the penalty is “doubled” if the failure applies to both filing an information return with the IRS, and providing a payee statement.

Below is a comparison of current and new penalties.

Penalties Comparison