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Tax Cuts and Jobs Act

IRS issues TCJA-required form for governments, etc. to report fines, etc. they received

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

2019 Form 1098-F, Fines, Penalties, and Other Amounts

2019 Instructions for Form 1098-F

IRS has issued new form, 2019 Form 1098-F, and the instructions to that form. The new form is used to comply with a section of the Tax Cuts and Jobs Act (TCJA) that requires government and nongovernment entities to report amounts they receive from taxpayers for fines, penalties, etc.

Background. For amounts generally paid or incurred on or after Dec. 22, 2017, the TCJA provides that no deduction is allowed for any otherwise deductible amount paid or incurred (whether by suit, agreement, or otherwise) to, or at the direction of, a government or specified nongovernmental entity in relation to the violation of any law or the investigation or inquiry by such government or entity into the potential violation of any law. (Code Sec. 162(f)(1))

An exception applies to payments that the taxpayer establishes are either restitution (including remediation of property) or amounts required to come into compliance with any law that was violated or involved in the investigation or inquiry. (Code Sec. 162(f)(2)(A)(i))

Government agencies (or entities treated as such) must report to IRS and to the taxpayer the amount of each settlement agreement or order entered into where the aggregate amount required to be paid or incurred to or at the direction of the government is at least $600 (or such other amount as may be specified by IRS). The report must separately identify any amounts that are for restitution or remediation of property, or correction of noncompliance. The report must be made at the time the agreement is entered into. (Code Sec. 6050X)

In March, 2018, IRS issued Notice 2018-23, 2018-15 IRB, which provides that reporting is not required under Code Sec. 6050X until the date specified in the proposed regs that IRS intends to issue. The specified date will not be earlier than Jan. 1, 2019, and will not be earlier than the proposed regs’ publication date.

IRS has not yet issued the proposed regs.

IRS issues 2019 form. IRS has now issued 2019 Form 1098-F, and the instructions to that form, to be used to implement Code Sec. 6050X.

Like most forms in the 1098 series and the 1099 series, there are three copies of the form; in this case, there is one copy for IRS, one for the taxpayer, and one for the governmental entity that received the money.

The second and third copies are available to be filled in online in a PDF format at IRS.gov/Form1098F. The copy for IRS is not available in that format. Governments, etc. may order official IRS information returns, which include a scannable Copy A for filing with IRS and all other applicable copies of the form. Information returns may also be filed electronically using the IRS Filing Information Returns Electronically (FIRE) system or the IRS Affordable Care Act Information Returns (AIR) program.

The form asks for identifying information about the taxpayer. It also asks for a lot of information about the fine, including the total amount required to be paid as a result of the court order or agreement, the amount identified in the court order or agreement as being required to be paid to come into compliance with any law, whether multiple payments have been or will be made to satisfy the total amount required to be stated, and whether the taxpayer has already paid the total amount required to be paid.

Both the copy of the form to be provided to IRS in the copy for the taxpayer must be filed by Jan. 31, 2020.

CheckmarkCaution.  As noted above, Code Sec. 6050X gives IRS the permission to change the $600 threshold amount described above. To date, IRS has not issued any pronouncement regarding the threshold. Interestingly, the Form 1098-F instructions provide that the form must be filed when the payment amount is “in excess of an amount determined by the Secretary.” Thus, governments, etc. should be on the lookout for a possible IRS pronouncement that is issued before the due date for the 2019 form and that changes the $600 amount.

References: For the reporting requirements regarding payments to governments, etc. re violations of the law, see FTC 2d/FIN ¶S-4271United States Tax Reporter ¶60,50X4.

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