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:
- $30 per form 1099, if filed within 30 days of the due date; with a maximum penalty of $75,000
- $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
- $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.