Thursday, January 14, 2016

Not Filing or Filing Forms 1099 Late

Late Filing Penalty

As the IRS continues to enforce tax compliance by small businesses, the added risk of not filling out Forms 1099 at year-end has grown significantly. 

The IRS now asks business owners (even sole proprietorships) two questions at tax filing time:
  • Did the entity make any payments in its tax year that would require it file forms(s) 1099?
  • If the answer to the above question is “yes,” did or will the entity file the required forms?
By responding to these questions, the business is indicating (under a penalty of perjury) that it has complied.  In reality, they are also questions that make the return itself either accurate and complete, or inaccurate.
Intentionally not providing a correct statement carries with it a penalty of $250 per 1099, with no maximum for the year. 

A late filing of the forms can lead to penalties ranging from $30 to $100 per 1099, with a maximum of $500,000 a year for any small business (defined below). The amount of the penalty is based on when the information returns were ultimately filed.  The business will be assessed as follows:
  1. $30 per form 1099, if filed within 30 days of the due date; with a maximum penalty of $75,000
  2. $60 per from 1099, if filed more than 30 days after the due date, but by August 1; with a maximum penalty of $200,000
  3. $100 per for 1099, if filed after August 1; with a maximum penalty of $500,000. 
For purposes of the above penalties, a small business is defined as one having made $5 million or less in average annual revenues for the previous three tax years.