Form 1099 re-do: changes bring new filing requirements, increased penalties.

• Author: Garverick, J. Patrick
• Position: Federaltaxupdate

get ready for coming changes to Form 1099 filings, including increased penalties for late filings and new filing requirements.

Internal Revenue Code Sec. 6041 requires Form 1099 information returns to be filed by every person engaged in a trade or business who makes payments [as defined in IRC Sec. 6041(a)] aggregating $600 or more in any taxable year to a single payee in the course of that payor's trade or business.

The regulations generally exempt payments to corporations, exempt organizations, governmental entities, international organizations or retirement plans.

The penalty for failing to file an information return generally is $50 for each return for which such failure occurs. The total penalty on a person for all failures during a calendar year cannot exceed $250,000. Additionally, special rules apply to reduce the per-failure and maximum penalty where the failure is corrected within a specified period.

However, the Patient Protection and Affordable Care Act of 2010, signed into law in March, carries a revenue raising provision that modified Form 1099 reporting requirements under Sec. 6041. Starting in 2012, the new law will require businesses to file an information return for all payments of goods or services aggregating $600 or more in a calendar year to a single payee (other than a payee that is a tax-exempt corporation). Congressional reports estimate that the new requirements will raise $17.1 billion over 10 years.

Further, the Small Business Jobs Act of 2010, signed into law in September, will require all persons who receive rental income (with a few exceptions) to issue Form 1099s for payments of $600 or more for rental property expenses starting in 2011. The penalties for failure to file information returns on time and failure to furnish a payee a statement also will be increased.

Below is a summary and timeline of the new rules applicable to Form 1099 information returns and penalties.

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Increased Penalty

Under Sec. 6721, any person required to file an information return who fails to do so on or before the filing date is subject to a penalty that varies based on when, if at all, the correct information return is filed. For Form 1099 information returns required to be filed after Dec. 31, 2010, Sec. 6721 is amended to increase the failure to timely file information penalties as follows:

First-Tier Penalty: If a person files a correct information return after the prescribed filing date, but on or before the date that is 30 days after the prescribed filing date, the penalty will be $30...