John Bennecke, Bob Gordon and Whitney Maracich
On June 29, 2015, President Obama signed the Trade Preferences Extension Act of 2015 (Pub. L. 114-27, the “Act”) into law. The Act primarily deals with various trade issues but contains two specific tax provisions as revenue offsets that could significantly impact businesses. These tax provisions have received little notice in the press, but taxpayers should nevertheless be aware of them and their potential impact on their business.
Penalties for Incorrect Information Returns
Section 806 of the Act amends sections 6721 and 6722 of the Internal Revenue Code (“IRC”) by substantially increasing various penalties for taxpayers who fail to file correct information returns. Information returns are defined in IRC section 6724(d)(1) and include (but are not limited to): Forms W-2, 1099, 1098, 1042; Schedule K-1; and forms under the Affordable Care Act such as Forms 1095-B and 1094-B.
The new law substantially increases the penalty for filing a single incorrect informational return from $100 to $250, and the maximum penalty imposed during a taxable year is increased from $1.5 million to $3 million. De minimis exceptions, penalties for small taxpayers, and reductions for prompt correction also increase taxpayers’ exposure by various amounts up to 300 percent.
Penalties are imposed for failure to timely file the information return, failure to include all the required information, or inclusion of incorrect information. While the regulations state that inconsequential errors or omissions are not considered a failure to include correct information, monetary amounts, significant items in the identification or address of the payee, and the proper form, are never considered inconsequential.
In light of the massive number of information returns that taxpayers are now required to file, taxpayers should take these increased potential penalties seriously and should review their processes and procedures for preparing and filing these returns.
Increased Estimated Corporate Tax Payments
Section 803 of the Act amends IRC section 6655 for corporations that have assets of not less than $1 billion at the end of 2019 by requiring them to increase their estimated corporate tax payments due in July, August, or September 2020, by 8 percent. On the other hand, the amount of the next required estimated corporate tax installment is to be appropriately reduced to reflect the 8 percent increase. It appears that this provision is designed to shift revenues into the U.S. government’s fiscal year ending September 30, 2020.
True Partners Consulting’s Federal Income Tax Team has the knowledge and expertise to assist taxpayers in developing and implementing practical approaches to avoid the potential penalties and comply with the increased estimated tax payment obligations.
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