New Error Safe Harbor for Information Returns and Payee Statments

A new Notice explains the scope of a new de minimis error safe harbor for information returns and payee statements created by the Protecting Americans from Tax Hikes Act of 2015.

Effective for returns and statements required to be filed after Dec. 31, 2016, the PATH Act established a de minimis error safe harbor from penalties for the failure to file correct information returns and for failure to furnish correct payee statements. If the error is $100 or less ($25 or less in the case of errors involving tax withholding), the issuer of the information return is not required to file a corrected return, and no penalty is imposed.

However, if any person receiving payee statements makes an election to request a corrected statement, the penalty for failure to file a correct information return and the penalty for failure to furnish a correct payee statement continue to apply in the case of de minimis errors on that statement.

The new Notice explains the scope of the safe harbor, the payee’s option to elect out of the safe harbor, and when and how the election is made.  The de minimis error safe harbor applies only to inadvertent errors on a filed information return or furnished payee statement. A payor that intentionally misreports a dollar amount on an information return or payee statement, whether or not the amount otherwise qualifies as de minimis, falls under the intentional disregard provisions of Code Sec. 6721(e) and Code Sec. 6722(e), and, therefore the de minimis error safe harbor does not apply. A pattern of non-compliance may indicate intentional disregard for purposes of the penalties. Additionally, the de minimis error safe harbor doesn’t apply to a failure to file or furnish an information return or payee statement, even if the payee statement or information return would report dollar amounts of $100 or less (or $25 or less with respect to any amount of tax withheld).

If you have any questions in regards to this new safe harbor for information returns and payee statements, please contact our office.