Proposed Regulations Address De Minimis Errors in Certain Information Returns and Statements

The IRS has issued proposed regulations relating to the penalties for failure to file correct information returns or furnish correct payee statements under Code §§ 6721 and 6722. Following IRS Notice 2017-09, the regulations include safe harbor rules that, for penalty purposes, would disregard certain de minimis errors relating to dollar amounts. Here are highlights:

• Safe Harbor. An information return or payee statement that includes one or more de minimis errors in a dollar amount will be treated as correct for penalty purposes. An error in a dollar amount is considered de minimis if the difference between any single amount in error and the correct amount does not exceed $100 or, if the difference is with respect to an amount of tax withheld, the difference is not more than $25. The return or statement must be otherwise correct and timely filed or furnished. The safe harbor does not apply in cases of intentional disregard of the requirements to file correct returns or furnish correct statements.
• Inapplicability Upon Election of Payee. The safe harbor does not apply to any payee statement if the payee timely elects in writing to receive a correct statement (free of de minimis errors). This election, which remains in effect for all subsequent years until revoked, must be furnished to the filer by the later of 30 days after the date on which the statement is required to be furnished, or October 15 of the calendar year in which the statement is to be furnished. Penalties for statements already issued with de minimis errors may be avoided by qualifying for a reasonable cause exception, generally by supplying a corrected statement within 30 days.
• Penalty Amounts. The proposed regulations would also update penalty amounts to reflect legislative increases and adjustments for inflation.

EBIA Comment: The proposed safe harbor exception would apply to information reported on Forms W-2, 1094/1095, and 1099-R, and therefore will be of interest to employee benefit professionals. The proposed regulations are consistent with a statement in the 2017 and 2018 instructions to Forms 1094/1095-C that applicable large employers are not required to correct Form 1095-C to avoid penalties if the safe harbor applies, although a corrected form may be required if a recipient elects that the safe harbor not apply. For more information, see EBIA’s Health Care Reform manual at Section XXXVI (“Reporting, Fees, and Required Payments”) and EBIA’s Form 1094/1095 Workbook at Sections IX.F (“Furnishing Employee Statements: Penalties and Corrections”) and X.D (“Filing With the IRS: Penalties, Corrections, and Replacement Filings”). See also EBIA’s 401(k) Plans manual at Section XIV.R (“Reporting Distributions on Form 1099-R”) and EBIA’s Fringe Benefits manual at Section II.H (”Tax Basics for Fringe Benefits: Risks for Employers”).

Contributing Editors: EBIA Staff.