On June 29, 2015 Congress passed a bill signed into law by the President doubling all information reporting penalties. This comes on the heels of the IRS decision earlier this year to cut its popular program answering questions related to the filing of Forms 1099 and 1042-S.

The Trade Preferences Extension Act of 2015, Public Law No: 114-27 (“Legislation”), which was signed into law on June 29, 2015, amends penalties applicable under IRC section 6721, Failure to file correct information returns, and IRC section 6722, Failure to furnish correct payee statements (the same IRS code sections that are involved in the issuance of proposed penalty notices). The amendments apply to returns and statements required to be filed after December 31, 2015. These increases impact taxpayers across all industries.

First, let's just review what code sections 6721 and 6722 provide:

Section 6721(a) imposes a penalty on the following:

• Any failure to file an information return with the Secretary on or before the required filing date
• Any failure to include all of the information required to be shown on the return or the inclusion of incorrect information.

Section 6722(a) imposes a penalty on the following:

• Any failure to furnish a payee statement on or before the required filing date
• Any failure to include all of the information required to be shown on the return or the inclusion of incorrect information.

The Legislation increases the penalties under sections 6721 and 6722 from $100 to $250 per return or statement, and the annual cap or limit on penalties per calendar year under each section is increased from $1,500,000 to $3,000,000. As such, for a filing that is both an information return for purposes of section 6721 and a payee statement under section 6722, the potential amount of penalties that could be assessed under these sections is $6,000,000.

Additionally, if the failure to file information returns or payee statements is a result of intentional disregard, the Legislation increases the penalties under section 6721 and under section 6722 from $250 per return/statement to $500 per return/statement; or, if greater, 10% of the aggregate amount required to be reported correctly.

These are huge changes that put real pressure on your Accounts Payable team to meet IRS compliance and reporting requirements for Forms 1099 and 1042-S; as a failure to do so can have costly consequences for even the biggest filers.