In June of 2015, Congress passed the Trade Preferences Extension Act which greatly enhanced the penalties for all 1099s. This means that the penalties for filing 1099s late have become substantial and this has become an area where the IRS is increasing their enforcement efforts.
In the past we have been advised by the IRS that as long as the forms were filed, they would waive the penalties. It appears that this is no longer going to be the case. We have had clients recently receive notices that the penalties are being enforced. This means that anyone required to file 1099s needs to be ready to file the forms by the end of January.
If your business pays an individual or unincorporated entity (think Partnership or LLC) more than $600 for services, you will need to file a 1099. These forms need to be sent to the recipients by January 31st and to the IRS by February 28th.
Not providing a correct statement carries a penalty of $250 per 1099 (with no maximum for the year). Late filing of 1099s could lead to penalties ranging from $50 to $100 per 1099 (based on when you file the correct form), with a maximum of $1,500,000 per year.
In addition to this requirement, there are questions on your income tax return that ask if you are required to file 1099s as well as if you actually filed 1099s. These questions are meant to determine “intentional disregard” of filing requirements. If your business is found to have intentionally disregarded the filing requirements, the penalties double to $500 per form (or 10% of the amount that is reported on the forms if greater).
It is obvious that Congress has used this area as a “revenue raiser” and has instructed the IRS to start enforcing these penalties.
What all this means is that your tax preparer is going to need some information from you in January regardless of when you will be filing your income tax return. These forms are going to have to be treated like payroll items and compliance is going to need to happen much sooner than your income tax compliance.
By Dan Mace, CPA