Final Regs Explain De Minimis Error Safe Harbor for Info Returns, Payee Statements

The IRS has issued final regs implementing statutory safe harbor rules that protect persons required to file information returns or to furnish payee statements from penalties under the Code for failure to file correct information returns or furnish correct payee statements. (TD 9984)

The statutory safe harbor rules treat information returns and payee statements with erroneous dollar amounts as correct returns or statements for certain penalty purposes if the errors are de minimis in dollar amount.

The final regs also:

• prescribe the time and manner in which a payee may elect not to have the statutory safe harbor rules apply,
• update dollar amounts, definitions, and references in existing regs relating to information return and payee statement penalties to reflect various statutory amendments to the Code that are not accounted for in the existing regs, and
• provide rules relating to the reporting of basis of securities by brokers as this reporting relates to the de minimis error safe harbor rules.

The de minimis error safe harbor exceptions are found in Code Sec. 6721(c)(3) and Code Sec. 6722(c)(3). An error in a reported dollar amount generally is “de minimis” if the difference between any single amount reported in error and the correct amount required to be reported does not exceed $100. If such a difference is with respect to reporting an amount of tax withheld, the difference may not be more than $25.

In 2018, the IRS published proposed regs (Preamble to Prop Reg REG-118826-16) to implement the de minimis error safe harbor exceptions, as well as to update dollar amounts, definitions, and references reflecting various statutory amendments to the Code that are not accounted for in provisions of existing regulations relating to information return and payee statement penalties. The proposed regs were issued following Notice 2017-9, 2017-4 IRBannouncing and describing regs intended to be issued under Code Sec. 6721, Code Sec. 6722, and Code Sec. 6724.

The final regs adopt the proposed regs with some modifications.

Applicability dates.

The proposed regs provided that the regs generally would apply with respect to information returns required to be filed and payee statements required to be furnished on or after January 1 of the calendar year immediately following the date of publication of the final regs.

However, the proposed regs provided that Prop Reg §301.6724-1(h) would apply with respect to information returns required to be filed and payee statements required to be furnished on or after January 1, 2017. The final regs generally adopt the applicability dates proposed in the proposed regs. However, because Notice 2017-9 was released on January 4, 2017, the final regs postpone the applicability date of Reg § 301.6724-1(h) by providing that it applies with respect to information returns required to be filed and payee statements required to be furnished after January 4, 2017.

Effect on other documents.

The final regs under Code Sec. 6045(g), Code Sec. 6721, Code Sec. 6722, and Code Sec. 6724 supersede Notice 2017-9 with respect to information returns required to be filed and payee statements required to be furnished on or after January 1, 2024.

For more information regarding the de minimis exception to information return penalty, see Checkpoint’s Federal Tax Coordinator ¶V-1816.1.