Regulatory and Legislative

IRS Issues Exceptions to Penalties for Failure to File Correct Information Returns or Payee Statements

The IRS has released final regulations that provide de minimis error safe harbor exceptions to penalties for failure to file correct information returns or furnish correct payee statements. These regulations 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.

The Protecting Americans from Tax Hikes (PATH) Act of 2015, part of the Consolidated Appropriations Act of 2016, created a safe harbor for de minimis errors in certain information returns filed with the IRS or in payee statements provided to recipients—including in Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts, etc., and Form 1042-S, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons. In most cases, a distribution amount error of $100 or less, or a withholding amount error of $25 or less, may not need to be corrected by issuing a revised form.

Among other things, the final regulations establish a maximum number of returns to which the de minimis exception can apply for a calendar year at no more than 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. This guidance will be reviewed for additional items of importance and findings shared.