IRS Announces Penalty Rules for
Delinquent or Incorrect Information Returns

The Internal Revenue Service has issued temporary regulations relating to the imposition of penalties for failure to comply with information reporting requirements. These regulations reflect changes to the law made by the Omnibus Budget Reconciliation Act of 1989 and appear in today's Federal Register.

Payers of interest, dividends, and certain other payments generally are required to file information returns on Form 1099 by February 28 of the year after the payments are made. The new rules provide a $50 penalty for each failure to file a correct document. In an effort to encourage filers to provide timely and correct information to the IRS, this penalty is reduced to $15 if the failure is corrected within 30 days of the required filing date and to $30 if a failure is corrected after the end of the 30-day period but on or before August 1 of the year in which the return is required to be filed.

Under the new rules, no penalty will be imposed on a de minimis number of errors -- the greater of 10 or one-half of one percent of all returns required to be filed -- if the filer corrects those errors by August 1. The regulations also provide that penalties will not be imposed for minor errors and omissions that do not hinder the processing of the return.

Also, penalties imposed for failures to timely file correct information returns will be waived if the failures have reasonable cause and are not due to willful neglect. Reasonable cause is present if the filer acted responsibly and establishes there are significant mitigating factors for the failure or the failure arose from events beyond the filer's control.

The regulations generally are effective for information returns due after Dec. 31, 1989. However, special transitional rules are provided under which penalties will be waived if payers complied with rules applicable under prior law.

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