20.1.7. Information Return Penalties

(1) Information return penalties are important tools for the IRS to encourage voluntary compliance by taxpayers. See IRM 1.2.1.12.1, Policy Statement 20–1 (Formerly P-1-18), Penalties are used to enhance voluntary compliance.

(2) The law requires taxpayers to timely file correct information returns with the IRS and to timely furnish complete payee statements to recipients. Information return penalties are imposed for any failure to file an information return or payee statement on or before the required filing date, in the required manner, and for any failure to include all the information required to be shown or the inclusion of incorrect information.

(1) IRC 6721 provides a penalty for failure to file correct information returns.

(2) IRC 6722 provides a penalty for failure to furnish correct payee statements.

(3) IRC 6723 provides a penalty for failure to comply with other information reporting requirements.

(4) IRC 6724 provides a reasonable cause waiver; definitions of information returns and special rules.

(5) The term "information return" means any statement, form, or return as described in IRC 6724(d)(1), or 26 CFR 301.6721-1(h), and the term "payee statement" means any statement as described in IRC 6724(d)(2) or 26 CFR 301.6722-1(e). See Exhibit 20.1.7-3 for a listing of forms.

(1) The Director of Business Support is the director responsible for the servicewide civil penalty program.

(2) Overall responsibility for civil penalty programs is assigned to OSP. OSP is a matrix organization residing in the Business Support (Small Business/Self Employed) Function. OSP is charged with coordinating policy and procedures concerning the administration of civil penalty programs, ensuring consistency with the penalty policy statement, reviewing and analyzing penalty information, researching penalty effectiveness on compliance trends, and determining appropriate action necessary to promote voluntary compliance.

(3) Each IRS organization is responsible for establishing an internal process for managing their procedures based upon these Servicewide policies and will develop additional guidance or reference materials for their specific functional administrative needs. However, such reference material must receive approval from OSP prior to distribution and must remain consistent with the policies and general procedural requirements set forth in this IRM, Policy Statement 20-1 (e.g., Penalty Policy Statement) in IRM 1.2.1.12.1, Policy Statement 20-1 (Formerly P-1-18), Penalties are used to enhance voluntary compliance, and any other guidance relating to civil penalties.

(4) All employees must keep the following objectives in mind when handling each penalty case:

1. Treat similar cases and similarly situated taxpayers alike.

2. Provide an opportunity to each taxpayer to have their interests heard and considered.

3. Strive to make a right decision in the first instance. A wrong decision, even though eventually corrected, has a negative impact on voluntary compliance.

4. Provide adequate opportunity for incorrect decisions to be corrected.

5. Treat each case in an impartial and honest way (i.e., approach the job, not from the government’s or the taxpayer’s perspective, but in the interest of fair and impartial enforcement of the tax laws).

6. Use each penalty case as an opportunity to educate the taxpayer, help the taxpayer understand their legal obligations and rights, assist the taxpayer in understanding their appeal rights, and in all cases, observe the taxpayer’s procedural rights.

7. Endeavor to promptly process and resolve each taxpayer’s case.

8. Resolve each penalty case in a manner which promotes voluntary compliance.

(1) Every function in the IRS has a role in proper penalty administration. It is essential that each function conducts its operations with an emphasis on promoting voluntary compliance. Appropriate reviews must be conducted to ensure consistency with Policy Statement 20-1 (Formerly P-1-18), Penalties are used to enhance voluntary compliance. See IRM 1.2.1.12.1.

(2) To promote the goal of consistency and fairness, OSP reviews semi-annually a sample of penalty assessments, provided by SB/SE Research. See IRM 20.3.1, Civil Penalty Accuracy Review Process. The report of findings is shared with the Director, Business Support, the CFO, and other leadership as needed. The completed report is uploaded to an enterprise shared folder. Reports will be prepared when a significant issue develops, such as a correction to programming that affects many taxpayers.

(1) OSP is organized into two sub-groups: Strategy & Analytics (SA) and Technical Analysis & Policy Specialist (TAPS). The SA group oversees penalty administration across multiple penalty programs. TAPS is a group of analysts that are assigned to specific penalties and serve as the subject matter expert. Each analyst is responsible for setting and maintaining policy and reviewing trends impacting their programs.

(1) For IRM 20.1.7, "TIN", refers to an Employer Identification Number (EIN), a Social Security Number (SSN), an Individual Taxpayer Identification Number (ITIN), or an Adoption Taxpayer Identification Number (ATIN).

(2) See Exhibit 20.1.7-5, Acronyms, for a list of acronyms and definitions used in this IRM.

(1) See the related resources with titles below:

(2) The IRS adopted the Taxpayer Bill of Rights (TBOR) in June 2014. Employees are responsible for being familiar with and acting in accordance with taxpayer rights. See IRC 7803(a)(3), Execution of Duties in Accord with Taxpayer Rights. For additional information about the TBOR, see Pub 5170, Taxpayer Bill of Rights, and the TBOR link at: https://irssource.web.irs.gov/Lists/General%20News/DispItemForm.aspx?ID=126.

(1) Payer Master File (PMF) is a file consisting of a composite of payer interest, partnership and S corporation distributions, gambling winnings, and miscellaneous/other categories of information returns filed by businesses, corporations, banks, credit unions, and other payers.

(2) This program creates and maintains a database of information relating to filers of information returns (such as the Form 1098 series, Form 1099 series, etc.). Information returns and extension and waiver requests are maintained for five tax years on PMF.

(3) PMF contains the payer entity and filing data from the payer record for certain information return submissions. The Information Return Master File (IRMF) database is updated on a weekly basis and is where the payee data (record of payment data to individuals from the payer) is updated and maintained.

(4) The Internal Revenue Code outlines civil penalty provisions for persons or entities who fail to file information returns as required. Based on the information return data processed to PMF, irreconcilable information is subject to penalties.

1. Notices 972CG, proposed civil penalty notices, are generated based on information from PMF. Assessments that result from the proposed notices are manually input to the Civil Penalty Module.

2. Penalties will also be proposed as the result of an examination of a filer's records.

(5) Employees can request information through the online Integrated Data Retrieval System (IDRS) and paper transcripts through the Privacy Act Transcript Request Activity (PATRA).

(6) PMF (Command Code (CC) “PMFOLS”) maintains data covering the five most current tax years of information for all Form 1096, Form W-3, Form 1042-T, Form 1094-B, and Form 1094-C documents, including generated penalty proposal amounts.

(7) Penalty abatements or waivers of proposed penalties (whether based on computer generated notices or manually determined) are not posted to PMF, therefore will not be available on PMFOL. This information must be obtained from IDRS CC "BMFOL" (MFT 13), CC "IMFOL" (MFT 55), or CC "TXMOD" (MFT 13/55).

(1) The return must be postmarked by the due date. Exhibit 20.1.7-3 shows the due dates for most information returns.

(2) When any due date falls on a Saturday, Sunday or legal holiday, the due date becomes the next "business" day that is not a Saturday, Sunday, or legal holiday. See IRC 7503.

(3) Information returns are filed either on paper or electronically. Paper information returns are filed with the Submission Processing Campus sites. Electronic information returns are filed through the FIRE (Filing Information Returns Electronically) System. Beginning January 2023, Forms 1099 can also be filed electronically through IRIS (Information Reporting Intake System). Forms W-2 are filed with the Social Security Administration and can be filed electronically through SSA Business Services Online. Information returns related to the Affordable Care Act (ACA) such as Form 1095-B and Form 1095-C are filed through the AIR (ACA Information Returns) System.

(4) Final regulations for the Taxpayer First Act, provision 2301, were issued February 21, 2023, by the Department of the Treasury and the Internal Revenue Service. Treasury Reg. 26 CFR 301.6011-2, reduced the threshold to require electronic filing, from 250 or more of the same document type to the aggregate of 10 or more returns in a calendar year beginning in tax year 2023. Partnerships are subject to additional e-filing rules. See IRM 20.1.7.11.

(1) A filer can request a waiver from the requirement to file information returns electronically by filing Form 8508, Application for a Waiver from Electronic Filing of Information Returns. See IRM 3.42.9.10, Form 8508, Application for a Waiver from Electronic Filing of Information Returns.

1. The filer must show that it would cause an undue economic hardship if the filer were to file electronically.

2. The request must be filed at least 45 days before the due date of the returns for which the filer is requesting a waiver. See IRM 20.1.7.11.

(2) An exemption is allowed for filers for whom using the technology required to file electronically conflicts with their religious beliefs. Although filers are not required to file a waiver or take any action to claim religious exemption, filers have the option to notify the IRS by filing Form 8508, Application for a Waiver From Electronic Filing of Information Returns. The exemption will be permanently recorded in the Payer Master File and the filer will not need to file a waiver in subsequent years.

(1) A filer can request an initial (automatic 30-day extension) and/or additional extension of time (non-automatic 30-day extension) to file information returns by filing Form 8809, Application for Extension of Time to File Information Returns, with the IRS. The extension request must be postmarked no later than the due date of the return, but not before January 1 of the filing year.

(2) There are four methods for filing a request for an extension of time to file information returns:

1. Fill-in Form 8809: Complete online on the FIRE System and receive an instant acknowledgement on screen if forms are completed properly and timely (30-day automatic extension).

2. Electronic File Transmission submitted on the FIRE System: Transmitters requesting an extension of time via an electronic file will receive the file status results online (30-day automatic extension).

3. Information Returns Intake System (IRIS): Complete an extension request for Form 1099 series (excluding Form 1099-NEC) and receive an instant acknowledgement on screen if forms are completed properly and timely (30-day automatic extension).

4. Paper Form 8809: Mail to the Ogden Service Center as directed on the form instructions (30-day automatic, additional 30-day and non-automatic extension).

(3) Filers can also request an extension of time to furnish the statement to recipients (payees). Filers have the option to use Form 15397, Application for Extension of Time to Furnish Recipient Statements or send a written request. The request must be faxed to the IRS. It must be received no later than the due date on which the statements are due to the recipients. The faxed letter must contain:

1. The filer's name, TIN and address,

2. A statement that your extension request is for providing statements to recipients,

3. Type(s) of information returns,

4. Reason for delay, and

5. Signature of filer or authorized agent.

(4) See IRM 3.42.9.11, Information Returns Extension Request Processing, for more information on extension requests.

(1) IRC 6751(b)(1) states, in general, that no penalty under the IRC shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher-level official as the Secretary may designate. At this time, the Secretary has not designated any higher-level official to approve initial determinations.

(2) The following penalties are excluded from the supervisory approval:

1. Additions to tax under IRC 6651, Failure to File Tax Return or to Pay Tax, IRC 6654, Failure by Individual to Pay Estimated Income Tax, and IRC 6655, Failure by Corporation to Pay Estimated Income Tax, and penalties under IRC 6662(b)(9), Overstatement of Deduction Provided in Section 170(p).

2. Any other penalty automatically calculated through electronic means. For additional information on supervisory approval for penalty assessments, see IRM 20.1.1.2.3, Approval Prerequisite to Penalty Assessments.

(1) A campus or field function will determine that a penalty should be imposed.

1. Philadelphia Campus (PSC) can impose the penalty manually or through the penalty proposal notice (Notice 972CG) which are systemically generated based on returns posted to the PMF. See IRM 4.19.25, Information Return Penalty (IRP) Procedures.

2. Field functions will impose the penalty during an examination/contact if it is found that the filer failed to file/furnish, filed/furnished late, or filed/furnished incorrect information returns or payee statements.

(2) See Exhibit 20.1.7-4 for a listing of Penalty Reference Numbers (PRNs) for information return penalties, their descriptions and which function uses them.

(1) To compute the appropriate information return or payee statement penalty as it relates to IRC 6721, IRC 6722, or IRC 6723, multiply the number of violations by the penalty rate in each penalty code section.

(2) Campus (PSC) function: refer to IRM 4.19.25, Information Return Penalty (IRP) Procedures, or IRM 20.1.7.5.3 for more information.

(3) Field functions: refer to IRM 20.1.7.5.1 and IRM 20.1.7.5.2 for more information.

(4) Do not assess the same penalty multiple times on the same return or payee/recipient statement. For example, if a Form 1099-MISC was filed late and with incorrect information, assess the IRC 6721 penalty only once for that form. However, an IRC 6722 penalty can also be assessed on that form for failure to furnish a correct payee statement.

(5) If more than one failure under the same penalty code section is applicable for a document, then apply the penalty using the following criteria:

1. If it is determined that the late-filing penalty, while proposed, will be waived, then the next penalty for that document (i.e., missing/incorrect TIN or other missing/incorrect information), must be considered.

2. If it is determined that the missing/incorrect TIN penalty, will be waived, then the next penalty for that document (i.e., incorrect media), must be considered.

(1) Copies of correspondence pertaining to the taxpayer must be sent to the authorized representative if a valid POA or TIA is received.

(2) A reply from a valid POA must be handled in the same manner as if the taxpayers themselves were responding.

(3) Original documents, photocopies, or documents submitted by FAX transmission are acceptable for processing.

(4) See IRM 4.11.55, Power of Attorney Rights and Responsibilities, for additional information regarding POAs and TIAs.

(1) No tax information can be sent to or discussed with an unauthorized third party.

1. Notify an unauthorized third party who is requesting authorization to act on behalf of the taxpayer or is requesting information concerning the penalty assessment, by letter that their request cannot be met.

2. Any further correspondence required must be sent directly to the taxpayer. Include a paragraph in the taxpayer's letter requesting that the taxpayer notify the third party of our direct reply to the taxpayer. See IRM 4.11.55.2.6.2, Form 8821 - Tax Information Authorization, and IRM 4.11.55.2.7.1, Missing or Incorrect Information on Form 2848 or Form 8821.

(1) Secure and make a copy of the delinquent information returns.

1. Follow the instructions in paragraph (3) below and send the original delinquent information returns to the appropriate IRS Campus.

   Note: For delinquent Forms W-2/W-2c, do not follow the instructions in paragraph (3), but instead follow the instructions in IRM 4.23.8.10.

If principal business, office or agency, or legal residence in the case of an individual, is located in:	Use the following address:
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2. Place a copy of the delinquent information returns in the penalty case file.

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(4) Prepare separate transmittals for each type of information return if there is more than one type of information return.

(5) Prepare Form 3198, Special Handling Notice for Examination Case Processing. Check the box “Civil Penalties” under “Special Features”. Under “Other Instructions” section of “Special Features”, state “Assess TC 240 penalties. Assess $ XXXX for Tax Year XXXX”. Include a separate statement for EACH year.

(6) Prepare and retain in the penalty case file Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties, for each tax year for the applicable penalty code section(s) and PRN. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡

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(8) Complete Form 886-A, Explanation of Items, activity records, etc. as applicable for the penalty case file.

(9) Ask for payment, prepare Form 3244-A, Payment Posting Voucher-Examination, and process the payment if the taxpayer agrees with the penalty.

(10) Do not secure an agreement on the Examination Report of Income Tax Changes. The information return penalty case file is separate from an income tax, employment tax or other case file.

(11) See Document 13267, Field Procedures for Securing and Processing Information Return Penalties, for more information on working information return penalty cases.

(1) Penalty assessments:

1. Generally, information return penalties are not asserted during collection actions; however, Collection personnel are not prohibited from making these types of assessments. During an investigation or other contact with taxpayers, it may be determined that required information returns have not been filed. The information returns must be secured from the taxpayer, and if applicable, assert the information return penalties.

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3. See IRM 20.1.7.5.1 for procedures in working delinquent information returns and Document 13267, Field Procedures for Securing and Processing Information Return Penalties, for more information.

(2) Abatements/Non-assessment:

1. See IRM 20.1.7.12.1 for waiver provisions due to reasonable cause for penalties under IRC 6721, IRC 6722 and IRC 6723.

2. The taxpayer must submit a signed statement explaining the basis for non-assertion/abatement due to reasonable cause or sign Form 3870, Request for Adjustment.

   Note: The signature must be executed under penalty of perjury. This requires insertion of "Under penalty of perjury the above information is true, correct and complete" on Form 3870 prior to obtaining the taxpayer's signature.

3. The penalty reason code for abating the penalty must be annotated in red ["PRCXXX" (fill in number corresponding to applicable penalty reason code)] on the face of Form 3870 before it is forwarded for processing. See IRM 20.1.1-2, Penalty Reason Code Chart, for penalty reason codes.

4. Requests for non-assertion/abatement of penalties due to reasonable cause must be approved by the requesting employee's supervisor. Approval will be denoted by the supervisor's signature next to the work on the form requesting non-assertion/abatement.

5. Penalties asserted by Examination (including SFR, IMF/BMF AUR or Field Audit) will not be abated by Collection and require a request for reconsideration. Forward the request for abatement to Examination for approval.

(3) Unassessed Liabilities - If after discussion of the causes for the failure, the employee determines that a taxpayer did not establish reasonable cause for the failure, the employee will inform the taxpayer that the penalty will be asserted.

1. If the taxpayer disagrees with the employee's determination and maintains that the penalty should not be asserted, the employee must provide written notification of the denial to the taxpayer.

2. Form 9423, Collection Appeal Request, will be sent to the taxpayer advising them of their pre-assessment appeal rights, claim procedures, and post-assessment appeal procedures.

3. When a Collection employee decides to deny penalty relief and proceeds with assertion of the penalty, it is imperative that the decision be recorded in such a manner that other IRS employees will be aware that reasonable cause has already been addressed.

4. When reasonable cause is denied at the time the information return penalty is recommended for assessment, the penalty reason code will be annotated on Form 8278 in column (e) opposite the penalty amount assessed. The penalty reason code (PRC) shall be entered in red in the following format "PRCXXX" (fill in number corresponding to applicable penalty reason code).

(4) Assessed Liabilities - When the Collection employee makes a determination not to abate a penalty for lack of reasonable cause, the taxpayer will be informed of that decision.

1. Written notification must be provided to the taxpayer when the taxpayer disagrees with the employee's determination and maintains that the penalty should be abated.

2. An appropriate input document will be used to request input of TC 290, Reason Code 062, blocking series 98 (without original return). This is necessary to insure that, if subsequent claims of reasonable cause are received, the employee will be able to determine that the issue has been addressed.

3. The Collection employee who rejected the abatement request will examine any written appeal submitted by the taxpayer for additional information which can change the original determination not to abate the penalty.

4. Normally collection action will be suspended on the penalty portion of the assessment during the 15-day period granted to the taxpayer to file an appeal, or during the period the case is under consideration by Appeals. However, action need not be suspended if circumstances meriting continuation of collection action exist. The Collection compliance function employee must obtain supervisory approval not to suspend collection of the penalty portion of the assessment.

(1) The penalties will be assessed on a Civil Penalty Module with:

• MFT 13 (Business Master File), or

• MFT 55 (Individual Master File).

(2) PSC (IRP Unit) assesses penalties that are preceded by a systemic Notice 972CG or other failures that are not preceded by this notice. See IRM 4.19.25, Information Return Penalty (IRP) Procedures.

(3) The penalty is assessed/waived/abated/sustained using command code ADJ54. See IRM 21.5.2, Adjustment Guidelines, for complete Campus processing instructions.

(4) Letter 1948-C, Civil Penalty Explained, is sent to the filer to request additional information, or to notify the filer that the explanation submitted establishes reasonable cause and the penalty will not be charged or will be removed.

(5) Letter 854-C, Penalty Waiver or Abatement Disallowed/Appeals Procedure Explained, is sent to the filer when a penalty waiver or abatement request is fully or partially denied. This letter provides appeal rights and the procedures filers must follow if they wish to appeal the IRS's decision.

(6) See IRM 4.19.25.12, Correspondex Letters, for a complete list of letters the IRP program uses.

(7) The following information must be input to the appropriate Civil Penalty Module to record the consideration of an assessment, or abatement of a penalty or a waiver request:

1. Enter RC 062 in the first reason code position if reasonable cause was considered and was either established or denied.

2. Use the appropriate Penalty Reason Code (PRC) (as shown in IRM 20.1.1-2, Penalty Reason Code Chart) in the fourth reason code position for waiving/abating a penalty due to reasonable cause.

   Note: Do not use Reason Code 062 if the penalty is waived/abated for other than reasonable cause, e.g., processing errors. In this case use only the appropriate fourth position penalty reason code.

(8) The TC 290 acts as a carrier transaction for adjustments on a civil penalty module. The TC 290 and the penalty reference number will carry to the civil penalty module as a TC 240/241 with the penalty reference number used in the adjustment transaction. The TC 290 is systemically deleted.

(1) IRM 1.2.1.12.2, Policy Statement 20-2 (Formerly P-2-4), Penalties and interest not asserted against Federal agencies, states that penalties and interest will not be asserted against agencies or instrumentalities of the United States.

(2) Federal agencies are restricted from certain types of enforcement, including penalties. As a result, systemic or manual penalty assessments are blocked upon input. Refer to IRM 5.19.15, Federal Agency Delinquency (FAD) Program, for additional information. If additional information is needed, contact the FAD unit via SERP “Who and Where” link- FAD Contact.

(3) Employment Code F is assigned to agencies of the United States Government. See IRM 3.13.2.6.3, Employment Code (EC) F, for additional information on employment code assignment.

(4) Federal agencies are not subject to receiving Notice 972CG. In lieu of Notice 972CG, federal agencies receive Notice 972F (formerly Notice 1313) informing them of those information returns filed with missing/incorrect TINs so they can take appropriate corrective actions.

(1) The Entity Function is the only area authorized to establish BMF accounts. Hand carry or use Form 3210, Document Transmittal, to route all cases that require that an account be established on the BMF to the Entity Control Unit. Maintain controls for all cases routed to Entity and ensure that they are returned for penalty assertion.

(2) Assess the appropriate penalty on IDRS following the instructions in this IRM subsection. Verify that the penalty was not previously assessed on the Civil Penalty Module (CPM).

(1) All IMF penalties must be assessed against the responsible individual. Assessments against joint accounts will not post to the CPM.

1. After entity is established on the CPM or the civil penalty name line (CVPN) is created, the penalty must be manually assessed following the appropriate instructions in this IRM.

2. In addition, correspondence must only be sent to the responsible (liable) individual. Ensure that the non-responsible spouse's name is removed before sending out a correspondence.

(2) An unpostable condition will occur when the taxpayer does not have an account on the IMF under their own SSN. Using the valid individual SSN, establish the account using CC "ENREQ" with TC 000.

(3) For the penalty to be assessed against a spouse filing as the secondary taxpayer on a joint individual tax return when that spouse has no account on the IMF, establish an account using "ENREQ" with TC 000.

1. Assess the appropriate penalty following the instructions in this IRM subsection. Verify that this is not a duplicate assessment.

2. Once an account is established, Master File processing will establish a CVPN on MFT 55 when the civil penalty assessment is input. Once created, the CVPN remains on the account and applies to all civil penalty periods.

(4) Special action to establish a CVPN for assessing civil penalties is required if all of the following conditions are met:

1. The current account is, or has ever been married filing jointly,

2. The assessment will be against the primary taxpayer whose SSN controls the account, and

3. The account does not already have a CVPN.

Note: If a CVPN already exists, MFTRA transcripts and CC "INOLE" or CC "ENMOD" will display it after the current name and address data.

(5) To establish a separate CVPN, use an IMF entity change (CC "ENREQ" to generate a TC 013) with the special CVPN procedures described in the IDRS Handbook. When using this special procedure, only the CVPN change will be input. No other entity change information is permitted. Information to otherwise update the entity, such as an address change, must be input before establishing the CVPN. When using this procedure, both first and last names must match the Master File name. If the name does not show on IDRS/Master File, check CC "MFTRA" or "INOLE."

(6) For a correct account on the Master File that has a CVPN, the name line will be updated (e.g., taxpayer's current account name is Mary Jones and the CVPN is Mary Smith) by input of CC "ENREQ" with the special procedures described above.

• EXAMPLE 1: A joint account is on Master File for John and Mary Doe (John's is the controlling SSN). A penalty is to be assessed against John. The account has no existing CVPN. Action: Input a CVPN for "John Doe" using the special procedures for establishing a CVPN shown in the IDRS Handbook. The penalty will be assessed immediately.

• EXAMPLE 2: On the same joint account as above, the penalty is to be assessed against Mary Doe. Mary has an account on Master File under own SSN with the name line of Mary Jones because they filed individually before filing jointly. There is no CVPN on Mary’s account because Mary is the secondary taxpayer. Action: Input a name change (and address change, if appropriate) to Mary’s existing Master File account, then assess the penalty. No CVPN has to be input because Mary is the secondary taxpayer.

• EXAMPLE 3: On a Joint account for John and Mary Doe, the penalty is to be assessed against Mary. However, Mary has no account under SSN on the Master File. Action: Establish an account for Mary on the Master File using SSN with TC 000, as described in the IDRS Handbook, then assess the penalty. No CVPN has to be input.

• EXAMPLE 4: John Doe has a separate account without a CVPN on Master File and a penalty is to be assessed. No special name line action is required, the penalty will be assessed and a CVPN will be generated by Master File.

• EXAMPLE 5: John and Mary Doe do not have an account on the Master File since they are non-filers. A penalty is to be assessed against John. If a joint return is to be processed as a delinquent or substitute, a joint name line must be established before establishing a CVPN. Once the joint entity is established, follow the special CVPN name line procedures to establish CVPN for John.

(1) If a failure is corrected within 30 days after the due date of the information return required to be filed, the penalty will be reduced.

(2) If the failure is corrected more than 30 days after the due date of the information return required to be filed, but on or before August 1 of the filing year, the penalty will be reduced.

(3) Small Business Limitation - If the filer's average annual gross receipts for the three most recent taxable years do not exceed $5,000,000, the maximum penalty in each of the three penalty categories will be reduced. For example, if the filer uses a calendar year for tax purposes, and the calendar year during which the return is required to be filed is 2023, then, the most recent three taxable years are 2022, 2021 and 2020.

• See IRC 448(c)(3)(C) when computing the average gross receipts test (gross receipts shall be reduced by returns and allowances). For subsidiary entities that have no income tax filing requirement and file their income with the parent entities, the gross receipts for the subsidiary entities will be evaluated based on the aggregated gross receipts of both parent and subsidiary(ies), as member(s) of a controlled group within the meaning of IRC 1563(a). See Section 448(c)(2) for additional aggregation rules.

(4) See Exhibit 20.1.7-1 and Exhibit 20.1.7-2 for applicable penalty rates and maximum limitations for small and large businesses and reduction of the penalty when corrected within certain time frames.

(1) The Intentional Disregard of the Rules and Regulations penalty under IRC 6721(e) applies when the facts and circumstances show that the filer knowingly or willfully failed to comply with the filing requirements of the information returns.

(2) Intentional disregard occurs when a filer knowingly or willfully chooses to ignore a rule or regulation’s requirements. The facts must show the filer:

1. Was required to file,

2. Knew of or willfully disregarded the requirement to file, and

3. Consciously chose not to file or willfully disregarded (i.e., ignored) the duty to file a timely and correct information return.

(3) 26 CFR 301.6721-1(g)(3)(i) provides that a pattern of failures indicates intentional disregard. The greater the number of failures, the greater the likelihood some of those failures could be due to intentional disregard.

(4) Additional questions relevant to ascertaining the existence of intentional disregard are:

• Did the filer correct the failure promptly after the discovery of the failure?

• Did the filer correct the failure within 30 days after written notification of the failure by the IRS, and

• Did the filer avoid an administrative inconvenience or was the cost of compliance greater than an IRC 6721 penalty?

(5) For instance, intentional disregard may exist when the filer believes it would be less expensive to pay the penalties under IRC 6721 than to comply with the applicable filing requirements of 26 CFR 301.6721-1(g)(3)(i).

(6) The Intentional Disregard of the Rules and Regulations penalty is $580 for returns due in 2023 and $630 for returns due in 2024 (see Exhibit 20.1.7-1 for rates of other years) for each information return required to be correctly filed, or if greater:

1. Ten percent of the total amount required to be reported on information returns other than returns of brokers, returns reporting direct sales, returns reporting mortgage interest received, returns reporting cash received, returns reporting foreclosures and abandonment of property, returns reporting exchanges of partnership interests, and returns reporting donated property per IRC 6721(e)(2)(A), or

2. Five percent of the total amount required to be reported on the information returns for brokers, exchange of partnership interest, or disposition of donated property payments per IRC 6721(e)(2)(B).

(7) When the intentional disregard is due to failure to file electronically as required by IRC 6011(e) and 26 CFR 301.6011-2 (see IRM 20.1.7.11, Regulations Requiring Use of Electronic Form), the method to compute the aggregate amount of the items required to be reported correctly under either IRC 6721(e)(2)(A) or IRC 6721(e)(2)(B) is as follows:

1. Step (1): Take the average of the amounts reported on all the returns or statements that were incorrectly paper filed for the calendar year.

2. Step (2): Multiply the average from step (1) by the number of returns that are subject to penalty (i.e., the number of paper-filed returns above the e-filing threshold for non-partnerships (250 returns for tax years before 2023 and 10 returns for tax year 2023 and thereafter).

3. Step (3): Multiply step (2) by the applicable percentages in either IRC 6721(e)(2)(A) or IRC 6721(e)(2)(B).

4. Step (4): Multiply the number of returns subject to penalty by $500 (for returns and statements required to be filed after December 31, 2015, subject to annual inflationary adjustments).

5. Step (5): Compare the result in step (3) and (4), and assess the greater amount.

(8) Form 8300 -The intentional disregard penalty for failing to file a correct Form 8300 under IRC 6050I(a) is the greater of:

1. $25,000, or

2. The amount of cash required to be reported in the transaction up to $100,000.

(9) The penalty for failing to file a correct Form 8300 applies to cash amounts exceeding $10,000 received by a trade or business (as defined by IRC 162). The information required to be provided by the recipient of the cash includes: the name, address and TIN of the person providing the cash; the amount of cash received; and the date and nature of the transaction.

(10) The intentional disregard penalty on Form 8300 is subject to a pre-assessment administrative appeal. Generally, this penalty will only be assessed as a result of an area office examination. See IRM 4.26.11, BSA Examiner Responsibilities for Form 8300 Examinations, for guidance on penalty applicability.

(11) There is no maximum dollar limitation for the intentional disregard of the rules and regulations penalty.

(1) No more than one IRC 6721 penalty can be imposed even if there is more than one failure on the same information return (for example, a return was filed late and with incorrect TIN). When a return is filed with multiple failures and the penalty amounts differ, the higher penalty will be imposed.

(2) The de minimis exception will apply to the number of incorrect information returns remaining after the reasonable cause waiver has been allowed. The de minimis exception will apply if the return:

1. Was timely filed,

2. Had missing or incomplete information, and

3. The filer corrected the missing or incomplete information on or before August 1st of the filing year.

(3) The maximum number of corrected information returns to which this exception applies cannot exceed the greater of: 10, or one-half of one percent of the total number of returns required to be filed during that calendar year. This exception only applies to returns that are due on January 31, February 28th or March 15th. Nevertheless, the returns that are not due on these dates are included in the total number of information returns that the filer is required to file for purposes of calculating the number of the returns subject to this exception.

(4) The penalty shall not be assessed for errors or omissions that are considered inconsequential.

(5) The term inconsequential means any failure that does not make it difficult for or prevent the IRS from:

1. Processing the return,

2. Matching the information return shown with the payee's tax return, or

3. Otherwise putting the information return to its intended use.

(6) Errors or omissions are never considered inconsequential if they relate to:

• A dollar amount (except for the safe harbor for certain de minimis errors, as provided in paragraph (8) below),

• A taxpayer identification number, and/or

• A surname of a payee.

(7) The IRS may administratively specify other errors or omissions that are never considered inconsequential.

(8) Safe harbor for certain de minimis errors on information returns and payee statements: IRC 6721(c)(3) and IRC 6722(c)(3) state with respect to an information return filed with the Secretary and a payee statement required to be furnished to a payee, if no single amount in error differs from the correct amount by more than $100, and no single amount reported for tax withheld differs from the correct amount by more than $25, then no correction shall be required and, for purposes of IRC 6721 and IRC 6722, such return shall be treated as having been filed/furnished with all of the correct required information. This safe harbor applies to returns required to be filed, and payee statements required to be furnished, after December 31, 2016. The recipients have the option to elect out of this safe harbor and can request to have the information return be corrected by the filer. See Notice 2017-09, IRB 2017-04 .

(1) These procedures are used to identify late filed paper returns received by the Submission Processing Campus during the current processing year:

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2. Operators will key in the received date from the date stamp whenever the "X" is present and the information returns will be processed to PMF.

3. These procedures will ensure that this information will update PMF.

(2) Do not identify returns filed by federal or quasi-governmental agencies for the penalty.

(3) If a correction is being submitted for a name or TIN change, or for the wrong type of return filed, the filer will submit two returns to make the correction:

1. One correction with "zero" money amounts, and

2. One original return to replace the first return filed.

(4) Campuses must attempt to identify this situation and ensure that the penalty is not assessed for the "replacement" return (original), since it is part of a correction.

(5) See IRM 3.10.8, Campus Mail and Work Control, Information Returns Processing, for more information.

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(10) For electronically filed information returns, TSO will enter the received date and provide postmarked material for late filed returns to allow PMF to automatically generate the penalty proposal notice for late filing as applicable. The notice generation process considers any granted extension of time to file.

(1) The Intentional Disregard of the Rules and Regulations Penalty applies when the facts and circumstances show that the filer knowingly or willfully failed to comply with the requirements of IRC 6722.

(2) Intentional disregard occurs when a filer knowingly or willfully chooses to ignore a rule or regulation’s requirements. The facts must show the filer:

1. Was required to file,

2. Knew of or willfully disregarded the requirement to file, and

3. Consciously chose not to file or willfully disregarded (i.e., ignored) the duty to file a timely and correct information return.

(3) 26 CFR 301.6721-1(g)(3)(i) provides that a pattern of failures indicates intentional disregard. The greater the number of failures, the greater the likelihood some of those failures could be due to intentional disregard. Additional questions relevant to ascertaining the existence of intentional disregard are:

1. Did the filer correct the failure promptly after the discovery of the failure?

2. Did the filer correct the failure within thirty days after written notification of the failure by the IRS?

3. Did the filer avoid an administrative inconvenience, and

4. Was the cost of compliance greater than the IRC 6722 penalty?

(4) Intentional disregard may exist when the filer believes it would be less expensive to pay the penalty under IRC 6722 than to comply with the requirement to provide a statement (26 CFR 301.6721-1(g)(3(iv)). Check payee's prior history of compliance to determine intentional disregard.

(5) The Intentional Disregard of the Rules and Regulations Penalty is $580 for returns due in 2023 and $630 for returns due in 2024 (see Exhibit 20.1.7-1 for rates of other years) for each payee statement required to be filed, or if greater:

1. Ten percent of the amount of income required to be reported on payee statements other than statements of brokers, statements reporting direct sales, statements reporting mortgage interest, statements reporting cash received, statements reporting foreclosures and abandonment of property, statements reporting exchanges of partnership interests and statements reporting donated property, or

2. Five percent of the amount required to be reported on the payee statements for brokers, exchange of partnership interest, or disposition of donated property payments.

(6) Form 8300 - The intentional disregard penalty for failing to provide a payor of cash with a statement as required by IRC 6050I(e) is the greater of $580 for returns due in 2023 and $630 for returns due in 2024 (see Exhibit 20.1.7-1 for rates of other years) or 10 percent of the amount required to be provided on the statement.

1. These penalties are asserted manually by field or campus examination personnel.

2. The taxpayer will be offered an administrative pre-assessment appeal.

(7) There is no maximum dollar limitation for the Intentional Disregard of the Rules and Regulations Penalty under IRC 6722.

(1) No more than one IRC 6722 penalty will be imposed even if there is more than one failure on the same statement (for example, furnished late and with incorrect TIN). However, where a statement is furnished with multiple failures and the penalty amounts differ, the higher penalty will be imposed.

(2) The penalty shall not be assessed if an error or omission is inconsequential. An error or omission is inconsequential when the failure does not prevent:

1. The timely receipt of correct information, or

2. The payee from putting the information to its intended use.

(3) Errors or omissions are never considered inconsequential if they relate to:

1. A dollar amount (except for the safe harbor for certain de minimis errors, as provided in paragraph (4) below),

2. A significant item in the payee address,

3. Use of the appropriate form for the information provided, whether or not it is an acceptable substitute for the official IRS form, and/or

4. The delivery of the information return to the payee either in person or by first class mail (in a mailer that alerts the payee that the statement is enclosed) under the following: IRC 6042(c), Returns Regarding Payments of Dividends and Corporate Earnings and Profits, IRC 6044(e), Returns Regarding Payments of Patronage Dividends, IRC 6049(c), Returns Regarding Payments of Interest, and/or IRC 6050N(b), Returns Regarding Payments of Royalties.

(4) Safe harbor for certain de minimis errors on information returns and payee statements: IRC 6721(c)(3) and IRC 6722(c)(3) state with respect to an information return filed with the Secretary and a payee statement required to be furnished to a payee, if no single amount in error differs from the correct amount by more than $100, and no single amount reported for tax withheld differs from the correct amount by more than $25, then no correction shall be required and, for purposes of IRC 6721 and IRC 6722, such return shall be treated as having been filed/furnished with all of the correct required information. This safe harbor applies to returns required to be filed, and payee statements required to be furnished after December 31, 2016. The recipients have the option to elect out of this safe harbor and can request to have the information return be corrected by the filer. See Notice 2017-09, IRB 2017-04. For information returns required to be filed and furnished on or after January 1, 2022, see 26 CFR 301.6721-1 and 26 CFR 301.6722-1.

(1) An inconsequential error or omission is not considered a failure to comply with a specified information reporting requirement. Therefore, the penalty shall not be assessed.

(2) The term "inconsequential" means any failure that does not make it difficult for the IRS to put the information to its intended use or prevent a payee from timely receiving correct information and reporting it on their return.

(1) Unless otherwise specified in this chapter, the IRS will waive (abate or not assess) an information return penalty when a filer requests a waiver of the penalty and establishes reasonable cause.

(2) If the request properly establishes reasonable cause, the penalty will be abated using normal procedures.

(3) If reasonable cause is not established, disallow the request using normal procedures.

(4) If additional information is needed to substantiate a request for the waiver of a penalty due to reasonable cause, contact the taxpayer or authorized representative.

(5) In all cases involving unauthorized third-party requests, correspond directly with the taxpayer to inform them of the action taken. Send a letter to the unauthorized third party explaining that you have responded directly to the taxpayer and include a paragraph in the taxpayer's letter requesting that the taxpayer notify the third party of our direct reply to the taxpayer.

(6) If the correspondence contains the penalty of perjury language (jurat) it must contain the affected taxpayer's signature or the signature of the taxpayer's authorized representative. The signature requirements are as follows:

1. Corporations - The statement must be signed by the president, vice-president, treasurer, assistant treasurer, chief accounting officer, or other officer duly authorized to sign returns and other documents. The fact that an individual within the corporation signed the statement shall be accepted as evidence that the individual is authorized to sign on behalf of the corporation (IRC 6062).

2. Partnerships - The statement must be signed by any one of the partners.

3. Joint individual accounts - The statement must contain the signature of one of the taxpayers who signed the original return to be considered a valid request.

(7) Reasonable cause for the information return penalties generally exists when:

1. The filer acted in a responsible manner, both before and after the failure occurred, and

2. (i) There are significant mitigating factors, or (ii) The failure was the result of circumstances beyond the filer’s control.

(8) Acting in a Responsible Manner (26 CFR 301.6724-1(d)) generally includes exercising the same degree of care that a reasonably prudent person (or organization) would use in the course of its business in determining filing obligations and in handling account information such as account numbers and balances. The filer must act in a responsible manner both before and after the failure occurs. Acting in a responsible manner also includes taking steps to avoid the failure, for example:

1. Requesting appropriate extensions of time to file when practical to avoid the failure,

2. Attempting to prevent a failure if it was foreseeable,

3. Acting to remove an impediment or the cause of the failure, and

4. Correcting the failure as promptly as possible, generally within 30 days.

(9) Where a penalty is imposed for missing or incorrect TINs, a filer must comply with special rules for acting in a responsible manner. See IRM 20.1.7.12.2.

(10) When reviewing a filer's request for a waiver, the following questions must be addressed to determine if the filer has acted in a responsible manner:

1. Do the reasons address the penalty that was assessed?

2. Does the length of time between the event cited as a reason and the filing date negate the event's effect?

3. Does the continued operation of a business after the event that caused the filer's noncompliance negate the event's effect?

4. Could the event that caused the filer's noncompliance or increased liability have reasonably been anticipated?

5. Was the penalty the result of carelessness or did the filer appear to have made an honest mistake?

   Note: Carelessness and forgetfulness are not examples of ordinary business care and prudence.

6. Has the filer provided sufficient detail (dates, relationships) to determine whether they exercised ordinary business care and prudence?

7. Is a non-liable person being blamed for the filer's noncompliance? What is the nature of the relationship between the taxpayer and the individual? Is the individual an employee of the taxpayer or an independent third party, such as an accountant or lawyer?

8. Has the filer documented all pertinent facts, i.e. death certificate, doctor's statement, insurance statement for proof of fire, etc.?

9. Does the filer have a history of being assessed the same penalty?

10. Could the filer have requested an extension or filed an amended return?

(11) A waiver must not be automatically granted where the filer claims ignorance of the filing requirements. However, ignorance of the law must be considered as one factor which indicates that the filer acted in a responsible manner if all the other facts support this contention.

(12) Significant mitigating factors - For the filer to establish reasonable cause under this category, the filer must show that they acted in a responsible manner as well as the existence of a significant mitigating factor. Events generally considered to be significant mitigating factors include, but are not limited to:

1. First time filer - prior to the failure, the filer had not previously been required to file this particular form or statement.

2. The filer has a history of complying with the information return reporting requirements. The filer's history of compliance must be considered whether or not the filer specifically requests abatement on this basis.

Note: A good compliance history can benefit a filer who shows that they acted in a responsible manner, but cannot show that an event beyond the filer's control caused the failure.

3. Significant consideration is given to if the filer was previously penalized under IRC 6721, IRC 6722, or IRC 6723.

Example: Failures that are not penalized because they are within the "de minimis" exception are not considered to have been penalized for purposes of evaluating a filer's compliance history.

(13) A filer can not continually rely on the same explanation to establish reasonable cause when the filer's compliance history indicates a pattern of failures. A filer is expected to take significant steps to prevent future failures of the same type. Consider the intentional disregard provisions.

(14) Determine if the filer was previously penalized. If so, did the error rate decrease from one year to the next? Consider the intentional disregard provisions; however, if the filer can show that they acted in a responsible manner and the failure was due to an event beyond the filer's control, then a penalty in a prior year must not be used as cause not to abate/waive the penalty.

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2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

(15) Events beyond the filer's control - for the filer to establish reasonable cause under this category, the filer must show that it acted in a responsible manner, as well as the event being beyond the filer's control. Events generally considered beyond the control of the filer include (but are not limited to) the following items in this subsection.

(16) Actions by the IRS - To establish an event beyond the filer's control as the result of actions by the IRS, the filer must show it relied on erroneous written information provided by the IRS. The filer must also show that reliance on the written advice was reasonable and that it relied in good faith on the information. The filer must provide:

1. A copy of the written information provided by the IRS including the name of the IRS employee and the date the erroneous advice was received.

2. A copy of the request for information, including the steps taken and the specific facts given to the IRS, and the answer received.

3. This information must be used in determining whether the taxpayer has shown reasonable cause for taking a position on the return giving rise to the penalty.

4. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

5. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

(17) Actions of an Agent -- For a filer to establish events beyond the filer's control as the result of actions of an agent (imputed reasonable cause), the filer must show that:

1. The filer exercised reasonable business judgment when contacting the agent, allowing the agent to timely file correct returns, or furnish correct payee statements.

2. The filer provided the agent with proper information well in advance of the due date of the return or statement, and the agent satisfied the significant mitigating factors, or an event beyond the agent's control occurred that could establish reasonable cause.

3. A filer who contracted with an agent and cannot establish reasonable cause based on the actions of the agent as described above, will be able to demonstrate reasonable cause on their own merit by having an established history of complying with the information reporting requirements, and otherwise acting in a responsible manner both before and after the failure occurred.

(18) Actions by the payee or any other person --For the filer to establish reasonable cause as the result of actions by the payee or any other person with respect to the return or payee statement:

1. The filer must show that the failure resulted from the failure of the payee, or other person, to provide the necessary information to the filer or resulted from incorrect information on which the filer relied that the payee or other person provided.

2. The filer must have made available to the payee all necessary information to complete the filing.

3. The filer must provide documentary evidence when requested by the IRS showing that the failure was attributable to the payee.

4. See 26 CFR 301.6724-1(e) and (f), IRM 20.1.7.12.2.2 and IRM 20.1.7.12.2.4 for special solicitation requirements that a filer must follow to establish reasonable cause if the failure of the filer to provide a correct TIN was due to the actions of the payee.

(19) Unavailability of business records - the business records must have been unavailable as a result of unforeseen conditions, and in a manner which would prevent timely compliance (ordinarily at least a two-week period prior to the due date or extended due date) of the information return, and the unavailability was caused by a supervening event. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

(20) A supervening event includes, but is not limited to:

1. A fire or other casualty that damages the business records or impairs the system for processing such records.

2. A statutory or regulatory change that relates directly to the data processing and is made so close to the time the information return or statement is required that for all practical purposes the change cannot be made.

3. The unavoidable absence (death or serious illness) of the person with the sole responsibility for filing a return or furnishing a statement. In the case of a corporation, estate, trust, etc., the death or serious illness must have been that of an individual having sole authority to file the return (not the individual preparing the return). If another person shares responsibility for filing the return and that other person is unaffected by the event, the event is not an event beyond the filer's control.

(21) The return was delivered to the IRS after its due date by the United States Postal Service if it was correctly addressed, mailed, and postmarked by the due date by the United States Postal Service, or a private postal meter, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ as long as delivery was within the time period a document mailed from the same point of origin ordinarily would be received if mailed on the last day prescribed for filing the return. If the return is received after the due date, the filer must establish the return was deposited in the mail on or before the due date, the delay in receiving the return was due to a delay in the transmission of the mail, and the cause of the delay.

(22) The taxpayer's statement that they erroneously addressed their return to the state taxing agency does not in itself constitute reasonable cause for filing late, since a properly addressed envelope is a legal requirement in determining timely mailing/filing (IRC 7502(a)(2)(B)). Further documentation of the circumstances that resulted in the taxpayer misdirecting the returns must be considered evidence the taxpayer acted in a responsible manner and was nevertheless unable to file on time. Acceptable documentation must include all of the following:

1. An excellent filing compliance record,

2. Dated or certified mail documents showing filing made to the state or local taxing agency on or before the return due date, and

3. Evidence that the act of misdirecting the return was due to extenuating circumstances, and not due to carelessness or intentional disregard.

(23) Undue Economic Hardship related to electronic filing - When a filer fails to file electronically as required under IRC 6011(e) and 26 CFR 301.6011-2, the filer must show that they failed to file electronically because of a lack of hardware and that to meet the requirement would have caused an undue economic hardship. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ The filer must fulfill (a), (b) and (c) of the following:

1. The filer attempted to contract out the electronic media filing, and the cost was prohibitive as determined 45 days before the due date of the return.

2. The filer supports the prohibitive costs with two estimates from unrelated service bureaus or computer software/hardware companies.

3. The filer filed the returns on paper.

4. The undue economic hardship criteria does not prevent the filer from establishing reasonable cause based on other criteria that would be applicable to the electronic media penalty. However, caution must be used to ensure that other reasonable cause criteria would be appropriate to the filer's failure to file electronically.

(24) Additional electronic media events that will be considered beyond the filer's control include:

1. The filer relied upon an internal computer system that encountered major hardware and/or software problems. Verification by documentation must be provided.

2. A reasonable cause submission must include the filer's documentation of the following - the nature and severity of problems and efforts to correct in a timely fashion including the timely and consistent effort exercised by responsible officials within the organization to monitor problems and execute corrective action. Inquire as to the efforts undertaken by the filer to meet filing obligations, including but not limited to contracting out to third parties, and/or filing the returns on paper to meet the due date.

3. Reasonable cause will be met if the filer provides documented evidence that they contacted two unrelated service bureaus and was informed that the service bureaus would not contract for preparation of electronic media information returns without contracting for a range of other data processing functions.

4. Reasonable cause will be met if a filer is located in geographically remote areas (e.g., remote parts of Alaska) and has found it impossible to arrange for an electronic media processing service. Care must be taken to review filer's documentation to ensure they were diligent in repeated attempts to contract for such service sufficiently in advance of the filing due date.

5. If the filer received an undue economic hardship waiver in a prior year, reasonable cause related to undue economic hardship will be determined on a case-by-case basis and not ordinarily be established for any subsequent year. Be alert that a prior waiver put the filer on notice as to the filing requirements.

(1) In general, a filer will have acted in a responsible manner if the filer:

1. Exercised reasonable care to determine their filing obligations and handle the account numbers and balances.

2. Took significant steps to avoid a failure, such as requesting an extension of time to file, attempting to prevent a foreseeable failure, and acting to remove the cause of a failure once it had occurred; and correcting the failure promptly once the cause of the failure had been removed.

(2) Correction of a failure is ordinarily considered prompt if made:

1. Within 30 days after the cause of the failure is removed,

2. Within 30 days after the failure is discovered, or

3. By the earliest date after the cause of the failure is removed or the failure is discovered on which a regular submission for corrections is made (a submission is considered "regular" only if made at intervals of 30 days or less).

(3) Reporting entities filing Form 1095-B or Form 1095-C will not be subject to penalties for failure to report a TIN (or for the inclusion of an incorrect TIN) if they comply with the requirements of 26 CFR 301.6724-1(e) (in the case of missing TINs) and 26 CFR 301.6724-1(f) (in the case of incorrect TINs).

(4) Form 1098-E: An educational institution or lender required to file Form 1098-E acts in a responsible manner regarding the TINs of students if it follows the solicitation requirements in 26 CFR 1.6050S-3(f)(3). If the institution or lender does not have a record of the individual's correct TIN, 26 CFR 1.6050S-3(f)(3)(ii) requires an annual solicitation for the individual's TIN not later than December 31 of each calendar year during which the institution or lender receives payments of interest.

(5) Form 1098-T: If an educational institution fails to comply with the new IRC 6724(f) certification requirement effective for returns required to be made, and statements required to be furnished, after December 31, 2015, the following applies: An educational institution or insurer required to file Form 1098-T acts in a responsible manner in regard to the TINs of students if it follows the solicitation requirements in 26 CFR 1.6050S-1(e)(3). If the institution or insurer does not have a record of the individual's correct TIN, 26 CFR 1.6050S-1(e)(3)(ii) requires an annual solicitation for the individual's TIN not later than December 31 of each calendar year during which the institution or insurer receives payments of, or bills for, qualified tuition and related expenses, or makes reimbursements, refunds, or reductions of such amounts respecting the individual.

(6) See 26 CFR 301.6724-1(d) for additional information.