The IRS issued final regulations on Monday that provide a de minimis safe harbor from the penalties for failure to file correct information returns under Sec. 6721 and failure to furnish correct payee statements under Sec. 6722 (T.D. 9984).
In response to comments received by the IRS, the final regulations make several modifications from the proposed regulations issued in 2018 (REG-118826-16), which were issued after a 2017 notice announcing the safe harbor and describing the intended proposed regulations (Notice 2017-09).
Under the de minimis rules, added by the Protecting Americans From Tax Hikes (PATH) Act, P.L. 114-113, payers are not required to correct an error on an information return or payee statement and are not subject to penalties for failure to file a correct information return or payee statement if the error relates to an incorrect dollar amount and is no more than $100 ($25 for withholdings).
The modifications made in the final regulations include a requirement that the payee be consistent in using the de minimis safe harbor when reporting basis. A commenter noted that a payee could elect to override the safe harbor exception with respect to a Form 1099-DIV, Dividends and Distributions, but not elect to override the safe harbor exception with respect to a corresponding Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. This could result in inconsistently reported basis, the IRS said.
To address this situation more clearly, the final regulations provide that if a Form 1099-DIV is corrected because a payee elects to override the de minimis error safe harbor exceptions as applied to the Form 1099-DIV, then the adjusted basis reported on the corresponding Form 1099-B must be based on and consistent with the corresponding corrected dollar amount shown on the corrected Form 1099-DIV.
The final regulations are also modified to clarify the definition of "tax withheld" by adding a reference to Sec. 3102 in Regs. Sec. 301.6722-1(d)(2) to settle any ambiguity about whether the term includes Social Security, Medicare, and additional Medicare taxes.
Generally, the final regulations apply to information returns required to be filed and payee statements required to be furnished on or after Jan. 1, 2017. However, the final regulations provide that Regs. Sec. 301.6724-1(h) applies to information returns required to be filed and payee statements required to be furnished after Jan. 4, 2017 (the date Notice 2017-09 was released).
— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.
