Title 26—Internal Revenue--Volume 1
PART 301—PROCEDURE AND ADMINISTRATION
§ 301.6721-1   Failure to file correct information returns.
(a) Imposition of penalty —(1) General rule. A penalty of $250 is imposed for each information return (as defined in section 6724(d)(1) and paragraph (h) of this section) with respect to which a failure (as defined in section 6721(a)(2) and paragraph (a)(2) of this section) occurs. No more than one penalty will be imposed under this paragraph (a)(1) with respect to a single information return even though there may be more than one failure with respect to such return. The total amount imposed on any person for all failures during any calendar year with respect to all information returns will not exceed $3,000,000. See paragraph (b) of this section for a reduction in the penalty if the failures are corrected within specified periods. See paragraph (c) of this section for an exception to the penalty for inconsequential errors or omissions. See paragraph (d) of this section for an exception to the penalty for a de minimis number of failures. See paragraph (e) of this section for a safe harbor exception for certain de minimis errors. See paragraph (f) of this section for lower limitations to the $3,000,000 maximum penalty. See paragraph (g) of this section for higher penalties if a failure is due to intentional disregard of the requirement to file timely correct information returns. See paragraph (i) of this section for inflation adjustments to penalty amounts. See § 301.6724-1(a)(1) for waiver of the penalty for a failure that is due to reasonable cause.
(2) Failures subject to the penalty. The failures to which section 6721(a) and paragraph (a)(1) of this section apply are—
(i) A failure to file an information return on or before the required filing date (“failure to file timely”), and
(ii) A failure to include all the information required to be shown on the return or including incorrect information (failure to include correct information). A failure to file timely includes a failure to file in the required manner, for example, electronically or in other machine-readable form as provided under section 6011(e). However, no penalty is imposed under paragraph (a)(1) of this section solely by reason of any failure to comply with the requirements of section 6011(e)(2), except to the extent that the failure occurs with respect to more than 10 returns, or with respect to a return described in section 6011(e)(4). If a partnership return under section 6031(a) is required to be filed electronically, each schedule required to be included with such return with respect to each partner will be treated as a separate information return for purposes of this section. See section 6724(e). Filers who are required to file information returns electronically and who file those information returns electronically are considered to have satisfied the electronic-filing requirement. Except as provided in paragraph (c)(1) or (e)(1) of this section, a failure to include correct information encompasses a failure to include the information required by applicable information-reporting statutes or by any administrative pronouncements (such as regulations, revenue rulings, revenue procedures, or information-reporting forms, and form instructions). A failure to include information in the correct format may be either a failure to file timely an information return or a failure to include correct information on an information return. For example, an error on an electronic submission to the Internal Revenue Service that prevents processing by the Internal Revenue Service may constitute a failure to file timely. However, if information is set forth on the wrong field of the electronic submission, that error may constitute a failure to file timely or a failure to include correct information, depending upon the extent of the failure. For purposes of paragraph (b) of this section, a failure to file corrected information returns in the format required under § 301.6011-2(c)(4)(ii) is a failure to correct the corresponding original information returns.
(b) Reduction in the penalty when a correction is made within specified periods —(1) Correction within 30 days. The penalty imposed under section 6721(a) for a failure to file timely or for a failure to include correct information will be $50 in lieu of $250 if the failure is corrected on or before the 30th day after the required filing date (corrected within 30 days). The total amount imposed on a person for all failures during any calendar year that are corrected within 30 days will not exceed $500,000.
(2) Correction after 30 days but on or before August 1. The penalty imposed under section 6721(a) for a failure to file timely or for a failure to include correct information will be $100 in lieu of $250 if the failure is corrected after the 30-day period described in paragraph (b)(1) of this section but on or before August 1 of the year in which the required filing date occurs (corrected after 30 days but on or before August 1). See paragraph (b)(6) of this section for an exception to the provisions of this paragraph (b)(2) for returns that are not due on January 31, February 28, or March 15. The total amount imposed on a person for all failures during any calendar year corrected after 30 days but on or before August 1 will not exceed $1,500,000.
(3) Required filing date defined. The term “required filing date” means the date prescribed for filing an information return with the IRS (or the Social Security Administration in the case of Forms W-2) determined with regard to any extension of time for filing.
(4) Penalty amount for return with multiple failures. If a return is subject to a penalty for more than one failure, and the penalty amounts for the failures differ, the higher penalty amount will be imposed.
(5) Examples. The provisions of paragraphs (a) and (b)(1) through (4) of this section may be illustrated by the following examples. These examples do not take into account any possible application of the de minimis exception under paragraph (d) of this section, the safe harbor exception for certain de minimis errors under paragraph (e) of this section, the lower small business limitations under paragraph (f) of this section, the penalty for intentional disregard under paragraph (g) of this section, adjustments for inflation under paragraph (i) of this section, or the reasonable cause waiver under § 301.6724-1(a):
(i) Example 1. Corporation R fails to file timely 23,000 Forms 1099-MISC, Miscellaneous Information, for the 2023 calendar year. Of the forms filed, 5,000 are filed with correct information within 30 days, and 18,000 after 30 days but on or before August 1, 2024. For the same year R fails to file timely 400 Forms 1099-INT, Interest Income, which R eventually files on September 28, 2024, after the period for reduction of the penalty has elapsed. R is subject to a penalty of $100,000 for the 400 forms that were not filed by August 1 ($250 × 400 = $100,000), $1,500,000 for the 18,000 forms filed after 30 days ($100 × 18,000 = $1,800,000, limited to $1,500,000 under paragraph (b)(2) of this section), and $250,000 for the 5,000 forms filed within 30 days ($50 × 5,000 = $250,000), for a total penalty of $1,850,000.
(ii) Example 2. Corporation T fails to file timely 14,000 Forms 1099-MISC for the 2023 calendar year. T files the 14,000 Forms 1099-MISC on September 3, 2024. Because T does not correct the failure by August 1, 2024, T is subject to a penalty of $3,000,000, the maximum penalty under paragraph (a) of this section. Without the limitation of paragraph (a) of this section, T would be subject to a $3,500,000 penalty ($250 × 14,000 = $3,500,000).
(iii) Example 3. In calendar year 2024, Corporation U timely files on paper 12 Forms 1099-MISC for the 2023 calendar year with correct information. Under § 301.6011-2, a person required to file at least 10 returns during calendar year 2024 must file those returns electronically. Corporation U does not correct its failures to file these returns electronically by August 1, 2024. See section 6721(b)(2). Corporation U is therefore subject to a penalty for a failure to file timely under paragraph (a)(2) of this section. However, under section 6724(c) and paragraph (a)(2) of this section, the penalty for a failure to file timely electronically applies only to the extent the number of returns exceeds 10. As Corporation U was required to file 12 returns electronically, it is subject to a penalty of $500 for two returns ($250 × 2 = $500).
(iv) Example 4. In calendar year 2024, Corporation W timely electronically files 25 Forms 1099-B (relating to proceeds from broker and barter exchange transactions) with incorrect information. On August 1, 2024, Corporation W discovers the errors and files 25 corrected Forms 1099-B on paper. Under § 301.6011-2(c)(4)(ii)(A), a person required to file an original information return covered by § 301.6011-2(b) electronically must file any corrected information return corresponding to that original return electronically. Under paragraph (a)(2)(ii) of this section, a failure to file a corrected information return electronically when required to do so is a failure to correct the corresponding original information return. As Corporation W was required to file its 25 corrected information returns electronically, it has failed to correct the original information returns and is subject to a penalty of $6,250 for failure to include correct information on its 25 original Forms 1099-B ($250 × 25 = $6,250), without any reductions for correcting the information on or before August 1.
(v) Example 5. During the 2024 calendar year, Corporation V files 25 Forms 1099-B (relating to proceeds from broker and barter exchange transactions) on paper. The forms were filed on March 15, 2024, rather than on the required filing date of February 28, 2024. Under § 301.6011-2, a person required to file at least 10 returns during calendar years 2024 and after must file those returns electronically. Corporation V does not correctly file these returns electronically by August 1, 2024. See section 6721(b)(2). Corporation V is subject to a penalty of $500 for filing 10 of the returns late, but within 30 days after the required filing date ($50 × 10). In addition, Corporation V is subject to a penalty of $3,750 for failing to file 15 returns electronically ($250 × 15).
(vi) Example 6. Partnership X has 120 partners in calendar year 2023. In calendar year 2024, it timely filed on paper its 2023 Form 1065 and 230 accompanying Schedules K-1 and Schedules K-3 (120 Schedules K-1 and 110 Schedules K-3). Partnership X filed no other returns during calendar year 2024. Under § 301.6011-3(a)(1)(ii), a partnership with more than 100 partners must electronically file its partnership return, including Schedules K-1 and K-3. Under section 6724(e), Schedules K-1 and K-3 are treated as separate information returns for purposes of penalties under section 6721, even though they are not listed under § 301.6011-2(b) as information returns required to be filed electronically and are not defined as information returns under section 6724(d). Under section 6724(c) and paragraph (a)(2) of this section, the penalty for a failure to file timely electronically applies only to the extent the number of returns exceeds 10. Partnership X would be subject to a penalty of $55,000 for failing to electronically file 220 Schedules K-1 and K-3 required to be included with the partnership return: the 11th through the 230th of the required schedules ($250 × 220 = $55,000). See section 6698 for the penalty for the failure to file the partnership return.
(6) Application to returns not due on January 31, February 28, or March 15. For returns that are not due on January 31, February 28, or March 15 (for example, a Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business ), the penalty is $50 if the failure is corrected within 30 days. If the failure is corrected after 30 days, the penalty is $250 rather than $100. There is no period during which the penalty is reduced to $100 under paragraph (b)(2) of this section.
(c) Exception for inconsequential errors or omissions —(1) In general. An inconsequential error or omission is not considered a failure to include correct information. For purposes of this paragraph (c)(1), the term inconsequential error or omission means any failure that does not prevent or hinder the IRS from processing the return, from correlating the information required to be shown on the return with the information shown on the payee's tax return, or from otherwise putting the return to its intended use. See paragraph (h)(5) of this section for the definition of payee.
(2) Errors or omissions that are never inconsequential. Errors or omissions relating to the following are never inconsequential—
(i) A taxpayer identification number;
(ii) A surname of a payee ( i.e., the person required to be furnished a copy of the information set forth on an information return); and
(iii) Any monetary amounts, except as provided in paragraph (e) of this section. The IRS may, by administrative pronouncement, specify other types of errors or omissions that are never inconsequential.
(3) Examples. The provisions of this paragraph (c) may be illustrated by the following examples, which do not take into account any possible application of the penalty for intentional disregard under paragraph (g) of this section or the reasonable cause waiver under § 301.6724-1(a):
(i) Example 1. A filer files a Form 1099-MISC (relating to miscellaneous income) with the IRS. The Form 1099-MISC is complete and correct except that the word “street” is misspelled in the payee's address. The error does not prevent or hinder the IRS from processing the return, from correlating the information required to be shown on the return with the information shown on the payee's tax return, or from otherwise putting the return to its intended use. Therefore, no penalty is imposed under paragraph (a) of this section.
(ii) Example 2. A filer files a Form 1099-MISC with the IRS. The Form 1099-MISC is complete and correct except that the payee's first name, William, is misspelled as “Willaim.” The error does not prevent or hinder the IRS from processing the return, from correlating the information required to be shown on the return with the information shown on the payee's tax return, or from otherwise putting the return to its intended use. See paragraph (c)(2) of this section. Therefore, no penalty is imposed under paragraph (a) of this section.
(iii) Example 3. A filer files a Form 1099-MISC with the IRS. The Form 1099-MISC is complete and correct except that the payee's name, “John Doe,” is misspelled as “John Ode.” Under paragraph (c)(2) of this section, supplying an incorrect surname for a payee is never considered an inconsequential error. Therefore, a penalty is imposed under paragraph (a) of this section.
(d) Exception for a de minimis number of failures —(1) Requirements. The penalty under paragraph (a) of this section is not imposed for a de minimis number of failures to include correct information if the filer corrects such failures on or before August 1 of the year in which the required filing date occurs. See paragraph (d)(4) of this section for special rules relating to returns that are not due on January 31, February 28, or March 15.
(2) Calculation of the de minimis exception. The number of returns to which the de minimis exception in this paragraph (d) applies for any calendar year will not exceed the greater of 10 or one-half of one percent of the total number of all information returns the filer is required to file during the year. If the number of returns on which the filer fails to include correct information exceeds the number of returns to which the de minimis exception applies, the de minimis exception applies to those returns that will afford the filer the greatest reduction in penalty. The de minimis exception applies to failures to include correct information that exist after the application (if any) of the safe harbor exception for certain de minimis errors under paragraph (e) of this section and after the application (if any) of the waiver for reasonable cause under section 6724(a) and § 301.6724-1. Returns to which the de minimis exception applies are treated as having been originally filed with correct information.
(3) Examples. The provisions of this paragraph (d) may be illustrated by the following examples. In each of the examples, the failures to file and to include correct information are subject to penalty under paragraph (a) of this section. The examples do not take into account any possible application of the safe harbor exception for certain de minimis errors under paragraph (e) of this section, the lower small business limitations under paragraph (f) of this section, the penalty for intentional disregard under paragraph (g) of this section, any adjustment for inflation under paragraph (i) of this section, or the reasonable cause waiver under § 301.6724-1(a).
(i) Example 1. Corporation T files timely 10,000 Forms 1099-INT, Interest Income, for 2023 by February 28, 2024. The 10,000 forms are all the information returns that T is required to file during the 2024 calendar year. Of the forms filed, 70 contained incorrect information. T corrects the failures on July 12, 2024. No penalty is imposed for 50 of the failures (that is, the greater of 10 or .005 × 10,000 = 50) even though the total failures, 70, exceed the number to which the de minimis exception may apply. The $100 penalty under paragraph (b)(2) of this section is imposed, in lieu of $250, for the remaining 20 failures, which were corrected after 30 days but before August 1, resulting in a total penalty of $2,000 ($100 × 20 = $2,000).
(ii) Example 2. Corporation U files timely 9,500 Forms 1099-INT for 2023 by February 28, 2024. Fifty of these returns contain incorrect information with respect to which U files correct information on August 1, 2024. U also files 500 Forms 1099-INT for 2023 on August 30, 2024, after the required filing date. The 10,000 returns are all the information returns that U is required to file during the 2024 calendar year. The calculation of the de minimis exception is based on the 10,000 returns required to be filed during the 2024 calendar year even though 500 of the returns filed during the year were not filed timely. Therefore, the number of failures for which the de minimis exception applies is 50, and accordingly no penalty is imposed for the 50 Forms 1099-INT that were corrected on August 1. However, the $250 penalty under paragraph (a)(1) of this section is imposed for each failure to file timely (that is, the de minimis exception does not apply to this penalty for failure to file timely), resulting in a total penalty of $125,000 ($250 × 500 = $125,000).
(iii) Example 3. Corporation V files timely 9,950 Forms 1099-INT for 2023 by February 28, 2024. However, V fails to file timely 50 of its Forms 1099-INT. The 10,000 returns are all the information returns that V is required to file during the 2024 calendar year. Upon discovering the error, V files the 50 returns within 30 days of February 28, 2024. The 50 returns are complete and correct except that V fails to include the taxpayer identification numbers of the payees on the returns. V files corrected returns on August 1, 2024. Absent application of the de minimis exception, the penalty imposed for the failure to include correct information would be $5,000 ($100 × 50 = $5,000). Because the incorrect returns are corrected on August 1, the 50 forms are treated under the de minimis exception as originally filed with correct information, and therefore no penalty is imposed under paragraph (a) of this section for the failure to include correct information. Nevertheless, the penalty under paragraph (a) of this section is imposed for the failure to file timely the 50 returns because the de minimis exception does not apply to the penalty for the failure to file timely. Hence, a penalty of $2,500 ($50 × 50 = $2,500) is imposed.
(iv) Example 4. Corporation W files timely 100 Forms 1099-DIV and files an additional 50 Forms 1099-DIV late, but within 30 days of February 28, 2024. These are all the information returns that W was required to file during the 2024 calendar year. W discovers errors on 10 of the returns that were filed timely, and on 5 of the returns that were filed late. W corrects all the errors on August 1, 2024. The de minimis exception applies to 10 of the corrected returns. The exception will be allocated to the 10 returns that were filed timely with incorrect information, because that allocation is most favorable to W (that is, applying the exception to a return filed late with incorrect information would save W $50, by reducing the penalty on that return from $100 to $50, but applying the exception to a return filed timely would save W $100, by reducing the penalty on that return from $100 to $0). ( See paragraph (b)(4) of this section.)
(4) Nonapplication to returns not due on January 31, February 28, or March 15. The exception for a de minimis number of failures provided in paragraph (d)(1) of this section does not apply to failures with respect to returns that are not due on January 31, February 28, or March 15 (for example, Forms 8300 reporting certain cash payments of $10,000 or more). Nevertheless, the returns that are not due on January 31, February 28, or March 15 are included in the total number of all information returns that the filer is required to file during a year for purposes of calculating the number of the returns subject to the de minimis exception under paragraph (d)(2) of this section.
(e) Safe harbor exception for certain de minimis errors —(1) In general. Except as provided in paragraph (e)(3) or (g)(4) of this section, the penalty under section 6721(a) and paragraph (a) of this section is not imposed for a failure described in section 6721(a)(2)(B) and paragraph (a)(2)(ii) of this section (failure to include correct information on information return) if the failure relates to an incorrect dollar amount and is a de minimis error. If the safe harbor in this paragraph (e) applies to an information return and the information return was otherwise correct and timely filed, no correction is required and, for purposes of this section, the information return is treated as having been filed with all of the correct required information.
(2) Definition of de minimis error. For the definition of de minimis error, see § 301.6722-1(d)(2).
(3) Election to override the safe harbor exception. The safe harbor exception provided for by paragraph (e)(1) of this section does not apply to any information return if the incorrect dollar amount that would qualify as a de minimis error for purposes of this paragraph (e) relates to an amount with respect to which an election has been made (and has not been revoked) under section 6722(c)(3)(B) and § 301.6722-1(d)(3). See § 301.6722-1(d)(3) for additional rules relating to the election under section 6722(c)(3)(B) and § 301.6722-1(d)(3), including rules relating to the revocation of the election and the inapplicability of the election to certain information. See § 301.6724-1(h) for rules relating to waiver of the section 6721 penalty in cases where the safe harbor exception provided for by paragraph (e)(1) of this section does not apply because of an election under § 301.6722-1(d)(3).
(4) Voluntary corrections. Regardless of whether the de minimis error safe harbor in this paragraph (e) provides an exception for not filing a particular corrected information return, the corrected information return may be filed voluntarily if a corresponding payee statement reflecting the information shown on the corrected information return is concurrently furnished to the payee.
(5) Limitations on applicability. The safe harbor exception provided for by paragraph (e)(1) of this section applies only for the purposes of information return penalties under section 6721. Accordingly, this safe harbor exception applies to the reporting of amounts on information returns, including the reporting of the withholding of tax on information returns, but it does not apply for purposes of any underlying requirements to withhold or pay tax. Interest, penalties, and other additions to tax may be imposed under other sections for under-withholding or underpaying tax in any amount.
(f) Lower limitations on the $250,000 maximum penalty amount with respect to persons with gross receipts of not more than $5,000,000 —(1) In general. If a person meets the gross receipts test (as defined in paragraph (f)(2) of this section) for any calendar year, the total amount of the penalty imposed on the person for all failures described in section 6721(a)(2) and paragraph (a)(2) of this section during the calendar year will not exceed $1,000,000. The total amount of the penalty imposed under paragraph (b)(1) of this section for failures corrected within 30 days will not exceed $175,000 for the calendar year. The total amount of the penalty imposed under paragraph (b)(2) of this section for failures corrected after 30 days but on or before August 1 will not exceed $500,000 for the calendar year.
(2) Gross receipts test. A person meets the gross receipts test for any calendar year if the average annual gross receipts for such person for the three most recent taxable years ending before such calendar year do not exceed $5,000,000. For purposes of determining the amount of gross receipts during the three most recent taxable years, the rules of section 448(c) (2) and (3) shall apply.
(g) Higher penalty for intentional disregard of requirement to file timely correct information returns —(1) Application of section 6721(e). If a failure is due to intentional disregard of the requirement to file timely or to include correct information on a return as described in paragraph (h) of this section, the amount of the penalty imposed under paragraph (a) of this section must be determined under paragraph (g)(4) of this section.
(2) Meaning of “intentional disregard.” A failure is due to intentional disregard if it is a knowing or willful—
(i) Failure to file timely, or
(ii) Failure to include correct information. Whether a person knowingly or willfully fails to file timely or fails to include correct information is determined on the basis of all the facts and circumstances in the particular case.
(3) Facts and circumstances considered. The facts and circumstances that are considered in determining whether a failure is due to intentional disregard include, but are not limited to—
(i) Whether the failure to file timely or the failure to include correct information is part of a pattern of conduct by the person who filed the return of repeatedly failing to file timely or repeatedly failing to include correct information;
(ii) Whether correction was promptly made upon discovery of the failure;
(iii) Whether the filer corrects a failure to file or a failure to include correct information within 30 days after the date of any written request from the IRS to file or to correct; and
(iv) Whether the amount of the information reporting penalties is less than the cost of complying with the requirement to file timely or to include correct information on an information return.
(4) Amount of the penalty. If one or more failures to file timely or to include correct information are due to intentional disregard of the requirement to file timely or to include correct information, then, with respect to each failure determined under this paragraph (g)—
(i) Paragraphs (b), (d), (e), and (f) of this section will not apply;
(ii) The $3,000,000 limitation under paragraph (a) of this section will not apply, and the penalty under this paragraph (g) will not be taken into account in applying the $3,000,000 limitation (or any similar limitation under paragraph (b) or (f) of this section) to penalties not determined under this paragraph (g);
(iii) The penalty imposed under paragraph (a) of this section will be $500 or, if greater, the statutory percentage; and
(iv) The term statutory percentage means—
(A) In the case of a return other than a return required under section 6045(a), 6041A(b), 6050H, 6050I, 6050J, 6050K, 6050L, or 6050V, 10 percent of the aggregate dollar amount of the items required to be reported correctly;
(B) In the case of a return required to be filed by section 6045(a), 6050K, or 6050L, 5 percent of the aggregate dollar amount of the items required to be reported correctly;
(C) In the case of a return required to be filed under section 6050I(a), for any transaction (or related transactions), the greater of $25,000 or the amount of cash (within the meaning of section 6050I(d)) received in such transaction to the extent the amount of such cash does not exceed $100,000; or
(D) In the case of a return required to be filed under section 6050V, 10 percent of the value of the benefit of any contract with respect to which information is required to be included on the return.
(5) Computation of the penalty; aggregate dollar amount of the items required to be reported correctly. The aggregate dollar amount used in computing the penalty under this paragraph (g) is the amount that is not reported or is reported incorrectly. If the intentional disregard relates to a dollar amount, the statutory percentage is applied to the difference between the dollar amount reported and the amount required to be reported correctly. If the intentional disregard relates to any other item on the return, the statutory percentage is applied to the aggregate amount of items required to be reported correctly. In determining the aggregate amount of items required to be reported correctly, no item will be taken into account more than once. For example, if a filer willfully fails to file a Form 1099-INT, Interest Income, on which $800 of interest and $160 of Federal income tax withheld (that is, backup withholding) is required to be reported, only the $800 amount is taken into account in computing the penalty.
(6) Examples. The provisions of this paragraph (g) may be illustrated by the following examples, which do not take into account any adjustments for inflation under paragraph (i) of this section:
(i) Example 1. On December 1, 2023, Automobile dealer P receives $55,000 from an individual for the purchase of an automobile in a transaction subject to reporting under section 6050I. The individual presents documents to P that identify him as John Doe. However, P completes the Form 8300 (relating to cash payments over $10,000 received in a trade or business) and reflects the name of a cartoon character as the filer. Because P knew at the time of filing the Form 8300 that the filer's name was not the name of the cartoon character, he willfully failed to include correct information as described under paragraph (g)(2) of this section. Therefore, the penalty under paragraph (g)(4) of this section is imposed for the intentional disregard of the requirement to include correct information. The amount used in computing the penalty under paragraph (g)(5) of this section is $55,000 (that is, the amount required to be reported on the return with respect to which the payee is not correctly identified). The amount of the penalty determined under paragraph (g)(4)(iv)(C) of this section is $55,000 (that is, the greater of $25,000 or the amount of cash received in the transaction up to $100,000).
(ii) Example 2. On December 1, 2023, Individual B contacts his agent, F, to act as his intermediary in the purchase of an automobile. B gives F $20,000 and requests F to purchase the automobile in F's name, which F does. F prepares the Form 8300 as required under section 6050I, but in the area designated for the name of the filer, F writes confidential. Because F knew at the time the return was filed that it contained incomplete information, the penalty under paragraph (g)(4) of this section is imposed for the intentional disregard of the requirement to include correct information. The amount used in computing the penalty under paragraph (g)(5) of this section is $20,000 (that is, the amount required to be reported on the return with respect to which the payee is not correctly identified). The amount of the penalty determined under paragraph (g)(4)(iv)(C) of this section is $25,000 (that is, the greater of $25,000 or the amount of cash received in the transaction up to $100,000).
(iii) Example 3. Corporation M deliberately does not include $5,000 of dividends on a Form 1099-DIV, Dividends and Distributions, on which a total of $200,000 (including the $5,000 dividends) is required to be reported under section 6042(a). Because the failure was deliberate, M's failure is due to intentional disregard of the requirement to include correct information. Accordingly, the amount of the penalty imposed under paragraph (a) of this section is determined under paragraph (g)(4) of this section. Because the Form 1099-DIV is required to be filed under section 6042(a), under paragraph (g)(4)(iv)(A) of this section the amount of the penalty with respect to such failure is 10 percent of the aggregate dollar amount of the items that were required to be but that were not reported correctly. Under paragraph (g)(5) of this section, $5,000 is the difference between the dollar amount reported and the amount required to be reported correctly. Therefore, the amount of the penalty is $500 ($5,000 × 0.10 = $500).
(iv) Example 4. Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips, requires certain large food and beverage establishments to report certain information with respect to tips. The form requires (among other things) that the establishment report its gross receipts from food and beverage operations. Establishment A, in intentional disregard of the information reporting requirement, reported gross receipts of $1,000,000, when the correct amount was $1,500,000. The significance of the gross receipts reporting requirement is that section 6053(c)(3)(A) requires an establishment to allocate as tips among its employees the excess of 8 percent of its gross receipts over the aggregate amount reported by employees to the establishment as tips under section 6053(a). A's misstatement of its gross receipts caused A to show $80,000 on the Form 8027 as 8 percent of its gross receipts, rather than the correct amount of $120,000. A correctly reported the amount of tips reported to it by employees under section 6053(a) as $80,000. Thus, A reported the excess of 8 percent of its gross receipts over tips reported to it as zero, rather than as the correct amount of $40,000. The requirement of reporting gross receipts is considered merely a step in the computation of the excess of 8 percent of gross receipts over tips reported to A under section 6053(a), so that the penalty for intentional disregard will be $4,000 (that is, 10 percent of the difference between the $40,000 required to be reported as the excess of 8 percent of gross receipts over tips reported under section 6053(a), and the zero amount actually reported).
(h) Definitions —

(1) Information return. For purposes of this section, the term information return has the same meaning as information return as defined in section 6724(d)(1), including any statement described in paragraph (h)(2) of this section, any return described in paragraph (h)(3) of this section, and any other items described in paragraph (h)(4) of this section.
(2) Statements. The statements subject to this section are the statements required by—
(i) Section 6041(a) or (b) (relating to certain information at source, generally reported on Form 1099-MISC, “Miscellaneous Income”; Form W-2, “Wage and Tax Statement”; Form W-2G, “Certain Gambling Winnings”; and Form 1099-INT, “Interest Income”);
(ii) Section 6042(a)(1) (relating to payments of dividends, generally reported on Form 1099-DIV, “Dividends and Distributions”);
(iii) Section 6044(a)(1) (relating to payments of patronage dividends, generally reported on Form 1099-PATR, “Taxable Distributions Received From Cooperatives”);
(iv) Section 6049(a) (relating to payments of interest, generally reported on Form 1099-INT or Form 1099-OID, “Original Issue Discount”);
(v) Section 6050A(a) (relating to reporting requirements of certain fishing boat operators, generally reported on Form 1099-MISC);
(vi) Section 6050N(a) (relating to payments of royalties, generally reported on Form 1099-MISC);
(vii) Section 6051(d) (relating to information returns with respect to income tax withheld, generally reported on Form W-2);
(viii) Section 6050R (relating to returns relating to certain purchases of fish, generally reported on Form 1099-MISC);
(ix) Section 110(d) (relating to qualified lessee construction allowances for short-term leases, generally reported by attaching a statement to an income tax return);
(x) Section 408(i) (relating to reports with respect to individual retirement accounts or annuities on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. );
(xi) Section 6047(d) (relating to reports by employers, plan administrators, etc., on Form 1099-R); or
(xii) Section 6035 (relating to basis information with respect to property acquired from a decedent, generally Form 8971, Information Regarding Beneficiaries Acquiring Property from a Decedent ), whether an initial or supplemental information return.
(3) Returns. The returns subject to this section are the returns required by—
(i) Section 6041A(a) or (b) (relating to returns of direct sellers, generally reported on Form 1099-MISC);
(ii) Section 6043A(a) (relating to returns relating to taxable mergers and acquisitions);
(iii) Section 6045(a) or (d) of the Code (relating to returns of brokers, generally reported on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, for broker transactions not involving digital assets; Form 1099-DA, Digital Asset Proceeds from Broker Transactions for broker transactions involving digital assets; Form 1099-S, Proceeds From Real Estate Transactions, for gross proceeds from the sale or exchange of real estate; and Form 1099-MISC, Miscellaneous Income, for certain substitute payments and payments to attorneys); and
(iv) Section 6045B(a) (relating to returns relating to actions affecting basis of specified securities);
(v) Section 6050H(a) or (h)(1) (relating to mortgage interest received in trade or business from individuals, generally reported on Form 1098, “Mortgage Interest Statement”);
(vi) Section 6050I(a) or (g)(1) (relating to cash received in trade or business, etc., generally reported on Form 8300, “Report of Cash Payments Over $10,000 Received In a Trade or Business”);
(vii) Section 6050J(a) (relating to foreclosures and abandonments of security, generally reported on Form 1099-A, “Acquisition or Abandonment of Secured Property”);
(viii) Section 6050K(a) (relating to exchanges of certain partnership interests, generally reported on Form 8308, “Report of a Sale or Exchange of Certain Partnership Interests”);
(ix) Section 6050L(a) (relating to returns relating to certain dispositions of donated property, generally reported on Form 8282, “Donee Information Return”);
(x) Section 6050P (relating to returns relating to the cancellation of indebtedness by certain financial entities, generally reported on Form 1099-C, “Cancellation of Debt”);
(xi) Section 6050Q (relating to certain long-term care benefits, generally reported on Form 1099-LTC, “Long-Term Care and Accelerated Death Benefits”);
(xii) Section 6050S (relating to returns relating to payments for qualified tuition and related expenses, generally reported on Form 1098-E, “Student Loan Interest Statement,” or Form 1098-T, “Tuition Statement”);
(xiii) Section 6050T (relating to returns relating to credit for health insurance costs of eligible individuals, generally reported on Form 1099-H, “Health Coverage Tax Credit (HCTC) Advance Payments”);
(xiv) Section 6052(a) (relating to reporting payment of wages in the form of group-life insurance, generally reported on Form W-2);
(xv) Section 6050V (relating to returns relating to applicable insurance contracts in which certain exempt organizations hold interests, generally reported on Form 8921, “Applicable Insurance Contract Information Return”);
(xvi) Section 6053(c)(1) (relating to reporting with respect to certain tips, generally reported on Form 8027, “Employer's Annual Information Return of Tip Income and Allocated Tips”);
(xvii) Section 1060(b) (relating to reporting requirements of transferors and transferees in certain asset acquisitions, generally reported on Form 8594, Asset Acquisition Statement ), or section 1060(e) (relating to information required in the case of certain transfers of interests in entities);
(xviii) Section 4101(d) (relating to information reporting with respect to fuel oils);
(xix) Section 338(h)(10)(C) (relating to information required to be furnished to the Secretary in case of elective recognition of gain or loss (effective for acquisitions after October 9, 1990, except any acquisition pursuant to a written binding contract in effect on October 9, 1990, and at all times thereafter before such acquisition));
(xx) Section 264(f)(5)(A)(iv) (relating to reporting with respect to certain life insurance and annuity contracts);
(xxi) Section 6050U (relating to charges or payments for qualified long-term care insurance contracts under combined arrangements, generally reported on Form 1099-R);
(xxii) Section 6039(a) (relating to returns required with respect to certain options);
(xxiii) Section 6050W (relating to information returns with respect to payments made in settlement of payment card and third party network transactions);
(xxiv) Section 6055 (relating to information returns reporting minimum essential coverage);
(xxv) Section 6056 (relating to information returns reporting on offers of health insurance coverage by applicable large employer members);
(xxvi) Section 6050Y (relating to returns relating to certain life insurance contract transactions); or
(xxvii) Section 6050Z (relating to reports relating to long-term care premium statements).
(4) Other items. The term information return also includes any form, statement, or schedule required to be filed with the IRS under chapter 4 of the Internal Revenue Code (the Code) or with respect to any amount from which tax is required to be deducted and withheld under chapter 3 of the Code (or from which tax would be required to be so deducted and withheld but for an exemption under the Code or any treaty obligation of the United States), including but not limited to Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, or Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax.
(5) Payee. For purposes of section 6721 the term “payee” means any person who is required to receive a copy of the information set forth on an information return by the filer of the return as defined in section 6724(d)(1).
(6) Filer. For purposes of this section the term filer means a person that is required to file an information return as defined in paragraph (h)(1) of this section under the applicable information reporting section described in paragraphs (h)(2) through (4) of this section.
(i) Adjustment for inflation. Each of the dollar amounts under paragraphs (a), (b), (f) (other than paragraph (f)(2)), and (g) of this section and section 6721(a), (b), (d) (other than section 6721(d)(2)(A)), and (e) will be adjusted for inflation pursuant to section 6721(f).
(j) Applicability dates —(1) In general. Except as provided in paragraph (j)(2) of this section, this section applies with respect to information returns required to be filed on or after January 1, 2024. See 26 CFR 301.6721-1, as revised April 1, 2023, for rules applicable prior to January 1, 2024.
(2) Exception. Paragraph (h)(2)(xii) of this section applies with respect to information returns required to be filed after September 17, 2024.
§ 301.6722-1   Failure to furnish correct payee statements.
(a) Imposition of penalty —(1) General rule. A penalty of $250 is imposed for each payee statement (as defined in section 6724(d)(2) and paragraph (e)(2) of this section) with respect to which a failure (as defined in section 6722(a) and paragraph (a)(2) of this section) occurs. No more than one penalty will be imposed under this paragraph (a) with respect to a single payee statement even though there may be more than one failure with respect to such statement. However, the penalty will apply to failures on composite substitute payee statements as though each type of payment and other required information were furnished on separate statements. A composite substitute payee statement is a single document created by a filer to reflect several types of payments made to the same payee. The total amount imposed on any person for all failures during any calendar year with respect to all payee statements will not exceed $3,000,000. See section 6722(e) and paragraph (c) of this section for higher penalties if a failure is due to intentional disregard of the requirement to furnish timely correct payee statements. See paragraph (d) of this section for a safe harbor exception for certain de minimis errors. See paragraph (f) of this section for inflation adjustments to penalty amounts. See § 301.6724-1(a)(1) for a waiver of the penalty for a failure that is due to reasonable cause.
(2) Failures subject to the penalty. The failures to which section 6722(a) and paragraph (a)(1) of this section apply are—
(i) A failure to furnish a payee statement on or before the prescribed date therefore to the person to whom such statement is required to be furnished (“failure to furnish timely”), and
(ii) A failure to include all of the information required to be shown on a payee statement or the inclusion of incorrect information (failure to include correct information). A failure to furnish timely includes a failure to furnish a written statement to the payee in a statement mailing as required under sections 6042(c), 6044(e), 6049(c), and 6050N(b), as well as a failure to furnish the statement on a form acceptable to the Internal Revenue Service (IRS). Except as provided in paragraph (b) or (d) of this section, a failure to include correct information encompasses a failure to include the information required by applicable information reporting statutes or by any administrative pronouncements issued thereunder (such as regulations, revenue rulings, revenue procedures, or information reporting forms).
(b) Exception for inconsequential errors or omissions —(1) In general. An inconsequential error or omission is not considered a failure to include correct information. For purposes of this paragraph (b), the term “inconsequential error or omission” means any failure that cannot reasonably be expected to prevent or hinder the payee from timely receiving correct information and reporting it on his or her return or from otherwise putting the statement to its intended use.
(2) Errors or omissions that are never inconsequential. Errors or omissions relating to the following are never inconsequential:
(i) A dollar amount, except as provided in paragraph (d) of this section;
(ii) The significant items in the address of a payee, which is the address provided by the payee to the filer;
(iii) The appropriate form for the information provided ( i.e., whether or not the form is an acceptable substitute for an official form of the IRS); and
(iv) The manner of furnishing a statement required under sections 6042(c), 6044(e), 6049(e), and 6050N(b). The IRS may, by administrative pronouncement, specify other types of errors or omissions that are never inconsequential.
(3) Examples. The provisions of this paragraph (b) may be illustrated by the following examples, which do not take into account any possible application of the penalty for intentional disregard under paragraph (c) of this section, the safe harbor exception for certain de minimis errors under paragraph (d) of this section, or the reasonable cause waiver under § 301.6724-1(a):
(i) Example 1. A payor furnishes a statement with respect to a Form 1099-MISC (relating to miscellaneous income). The payee statement is complete and correct, except the word “boulevard” is misspelled in the payee's address. The error cannot reasonably be expected to prevent or hinder the payee from timely receiving correct information and reporting it on his or her tax return or from otherwise putting the statement to its intended use. Therefore, no penalty is imposed under paragraph (a) of this section.
(ii) Example 2. Assume the same facts in paragraph (d)(3)(i) of this section ( Example 1 ), except that the only error on the payee statement is that the payee's street address, 4821 Grant Boulevard, is reported incorrectly as 8421 Grant Boulevard. A penalty is imposed under paragraph (a) of this section with respect to the payee statement because the error can reasonably be expected to prevent or hinder the payee from timely receiving correct information and reporting it on his or her tax return or from otherwise putting the statement to its intended use.
(c) Higher penalty for intentional disregard of requirement to furnish timely correct payee statements —

(1) Application of section 6722(e). If a failure is due to intentional disregard of the requirement to furnish timely correct payee statements, the amount of the penalty must be determined under paragraph (c)(2) of this section. Whether a failure is due to intentional disregard of the requirement to furnish timely correct payee statements is based upon the facts and circumstances surrounding the failure. The facts and circumstances considered include those under § 301.6721-1(g)(3), which will apply in determining whether a failure under this section is due to intentional disregard.
(2) Amount of the penalty. If one or more failures under paragraph (a) of this section are due to intentional disregard of the requirement to furnish timely payee statements or of the requirement to include correct information, then, with respect to each such failure determined under this paragraph (c)(2)—
(i) Paragraph (d) of this section will not apply;
(ii) The $3,000,000 limitation under paragraph (a) of this section will not apply and the penalty under this paragraph (c)(2) will not be taken into account in applying the $3,000,000 limitation to penalties not determined under this paragraph (c)(2);
(iii) The penalty imposed under paragraph (a) of this section will be $500 or, if greater, the statutory percentage; and
(iv) The term “statutory percentage” means—
(A) In the case of a payee statement other than a statement required under section 6045(b), 6041A(e) (in respect of a return required under section 6041A(b)), 6050H(d), 6050J(e), 6050K(b), or 6060L(c), 10 percent of the aggregate dollar amount of the items required to be reported correctly, or
(B) In the case of a payee statement required under section 6045(b), 6050K(b), or 6050L(c), 5 percent of the aggregate dollar amount of the items required to be reported correctly.
(3) Computation of the penalty; aggregate dollar amount of items required to be shown correctly. The aggregate dollar amount used in computing the penalty under this paragraph (c) is the amount that is not reported or is reported incorrectly. If the intentional disregard relates to a dollar amount, the statutory percentage is applied to the difference between the dollar amount reported and the amount required to be reported correctly. If the intentional disregard relates to any other item on the return, the statutory percentage is applied to the aggregate amount of items required to be reported correctly. In determining such amount the same item shall be counted only once. For example, if a filer willfully fails to furnish a Form 1099-INT on which $800 of interest and $160 of Federal income tax withheld ( i.e., backup withholding) is required to be shown, only the $800 amount is taken into account in computing the penalty.
(d) Safe harbor exception for certain de minimis errors —(1) In general. Except as provided in paragraphs (c) and (d)(3) of this section, the penalty under section 6722(a) and paragraph (a) of this section is not imposed for a failure described in section 6722(a)(2)(B) and paragraph (a)(2)(ii) of this section (failure to include correct information on payee statement) if the failure relates to an incorrect dollar amount and is a de minimis error. If the safe harbor in this paragraph (d) applies to a payee statement and the payee statement was otherwise correct and timely furnished, no correction is required and, for purposes of this section, the payee statement is treated as having been furnished with all of the correct required information.
(2) Definition of de minimis error. For purposes of this paragraph (d), an error in a dollar amount is de minimis if the difference between any single amount in error and the correct amount is not more than $100, and, if the difference is with respect to an amount of tax withheld, it is not more than $25. For purposes of this paragraph (d)(2), tax withheld includes any amount required to be shown on an information return or payee statement (as defined in section 6724(d)(1) and (2), respectively) withheld under section 3102 or 3402, as well as any such amount required to be shown on such an information return or payee statement that is creditable under section 27, 31, 33, or 1474.
(3) Election to override the safe harbor exception —(i) In general. Except as provided in paragraphs (d)(3)(vi) and (vii) of this section, the safe harbor exception provided for by this paragraph (d) does not apply to any payee statement if the person to whom the statement is required to be furnished (the payee) makes an election that the safe harbor not apply with respect to the statement.
(ii) Timing of election. The payee must elect no later than the later of 30 days after the date on which the payee statement is required to be furnished to the payee, or October 15 of the calendar year, to receive a correct payee statement required to be furnished in that calendar year without having the safe harbor under paragraph (d)(1) of this section apply. The date of an election is the date the election is received by the filer. For purposes of this section, the provisions of section 7502 relating to timely mailing treated as timely delivery apply in determining the date an election is considered to be received by the filer, treating delivery to the filer as if the filer were an agency, officer, or office under such section. The election will remain in effect for all subsequent years unless revoked under paragraph (d)(3)(vii) of this section.
(iii) Manner for making the election. Except as provided in paragraph (d)(3)(v) of this section, the payee must make the election by delivering the election in writing to the filer. Except as provided in paragraph (d)(3)(v) of this section, the written election must be made in writing on paper. The payee may deliver the election in person, by mail by United States Postal Service, or by a designated delivery service as defined under section 7502(f)(2). If the filer has not otherwise provided an address under paragraph (d)(3)(v) of this section, the payee must send the written election to the filer's address appearing on the payee statement furnished by the filer to the payee with respect to which the election is being made or as directed by that person upon appropriate inquiry by the payee. The written election must:
(A) Clearly state that the payee is making the election;
(B) Provide the payee's name, address, and taxpayer identification number ( TIN ) (as defined in section 7701(a)(41) of the Internal Revenue Code) to the filer;
(C) If the payee wants the election to apply only to specific types of statements, identify the type of payee statement(s) and account number(s), if applicable, to which the election applies (for example, Form 1099-DIV, Dividends and Distributions ); and
(D) Provide any other information required by the IRS in forms, instructions, or publications.
(iv) Payee statements to which the election applies. An election by a payee under paragraph (d)(3)(i) of this section applies to all types of payee statements the filer is required to furnish to the payee, unless the payee specifies otherwise on the election under paragraph (d)(3)(iii)(C) of this section.
(v) Reasonable alternative manner for making the election in cases of notification by the filer —(A) In general. If the filer satisfies the requirements of paragraph (d)(3)(v)(B) of this section, and provides for a reasonable alternative manner as described in paragraph (d)(3)(v)(E) of this section, a payee may decide to make the election under paragraph (d)(3)(i) of this section pursuant to that reasonable alternative manner.
(B) Notification of payee of reasonable alternative manner for making election. The filer may elect to provide notification to the payee of a reasonable alternative manner to make the election under paragraph (d)(3)(i) of this section, as described in paragraph (d)(3)(v)(E) of this section. To provide a valid notification under this paragraph (d)(3)(v)(B), the filer must provide notification to the payee that:
( 1 ) Is in writing (either on paper or in electronic format);
( 2 ) Is timely provided to the payee under paragraph (d)(3)(v)(D) of this section;
( 3 ) Explains to the payee to whom that filer is required to furnish a payee statement of the payee's ability to elect, under paragraph (d)(3)(i) of this section, that the safe harbor exceptions for de minimis errors not apply, and of the payee's ability to choose to make the election using the default method under paragraph (d)(3)(iii) of this section;
( 4 ) Provides an address to which the payee may send an election under paragraphs (d)(3)(i) and (iii) of this section;
( 5 ) Provides any reasonable alternative manner or manners, as described in paragraph (d)(3)(v)(E) of this section, that the filer is making available for the payee to make the election under paragraph (d)(3)(i) of this section; and
( 6 ) Describes the information required for making the election described by paragraphs (d)(3)(iii)(A) through (D) of this section. Solely for purposes of the reasonable alternative manner, the notification may provide that some or all of the information described in paragraph (d)(3)(iii)(B) of this section is not required and may provide that the provision of an account number as referenced in paragraph (d)(3)(iii)(C) of this section is required if the payee decides to use the reasonable alternative manner for the election.
(C) Notification of revocation procedures. A notification under this paragraph (d)(3)(v) may also provide the procedures for making a revocation of an election under paragraph (d)(3)(vii) of this section. Solely for purposes of the reasonable alternative manner, the notification may provide that some or all of the information described in paragraph (d)(3)(vii)(B) of this section is not required and may provide that the provision of an account number as referenced in paragraph (d)(3)(vii)(E) of this section is required if the payee decides to use a reasonable alternative manner for making a revocation.
(D) Time for providing notification of reasonable alternative manner for making payee election. A notification under this paragraph (d)(3)(v) will be timely under paragraph (d)(3)(v)(B)( 2 ) of this section if:
( 1 ) The notification is provided with, or at the time of, the furnishing of the payee statement; or
( 2 ) The filer previously provided a valid notification under paragraph (d)(3)(v) of this section to the payee with, or at the time of, the furnishing of a payee statement associated with a particular account, in which case notification will be considered to have been timely provided with respect to subsequent payee statements associated with that particular account. If the filer wishes to provide for a different reasonable alternative manner than a previous reasonable alternative manner, the filer must provide new notification in compliance with the timeliness rule of paragraph (d)(3)(v)(D)( 1 ) of this section, and must accept payee elections under the previous reasonable alternative manner for a period of at least 60 days after the receipt of the new notification by the payee.
(E) Reasonable alternative manner. A reasonable alternative manner described in a notification under paragraph (d)(3)(v)(B) of this section may include that a payee election under paragraph (d)(3)(i) of this section may be made electronically (for example, via email or website) or telephonically. The reasonable alternative manner may not impose any prerequisite, condition, or time limitation on, or otherwise limit, the payee's ability to make an election under paragraph (d)(3)(iii) of this section, except as described in paragraphs (d)(3)(ii) and (iii) of this section; it may only offer a reasonable alternative manner or manners for making this election under this paragraph (d)(3)(v).
(vi) Election not available for certain information. The election to override the safe harbor exception provided for by paragraph (d)(3)(i) of this section is not available with respect to information that may not be altered under specific information reporting rules. See, for example, § 1.6045-4(i)(5) of this chapter.
(vii) Revocation of election. The payee may revoke a prior election by submitting a revocation to the filer. The effect of a revocation of a prior election is that the safe harbor for certain de minimis errors will apply to the payee statements that the payee identifies and that are furnished or are due to be furnished after the revocation is received. The revocation will remain in effect until the payee makes a valid and timely election under paragraph (d)(3)(i) of this section. The date of a revocation is the date the revocation is received by the filer. For purposes of this section, the provisions of section 7502 relating to timely mailing treated as timely delivery apply in determining the date a revocation is considered to be received by the filer, treating delivery to the filer as if the filer were an agency, officer, or office under section 7502. The revocation must be made in the same manner or manners described for making the election, that is pursuant to either paragraph (d)(3)(iii) or (v) of this section, as the payee chooses if paragraph (d)(3)(v) of this section is applicable. Except as provided under paragraph (d)(3)(v)(B)( 6 ) of this section, the revocation must:
(A) Clearly state that the payee is revoking the payee's prior election;
(B) Provide the payee's name, address, and TIN to the filer;
(C) Provide the name of the filer;
(D) Identify the type of payee statement(s) (for example, Form 1099-DIV) to which the revocation applies;
(E) Identify the account number(s), if applicable, to which the revocation applies; and
(F) Provide any other information required by the IRS in forms, instructions or publications.
(viii) Reasonable cause. See § 301.6724-1(h) for rules relating to waiver of the section 6722 penalty in cases where the safe harbor exception provided for by paragraph (d)(1) of this section does not apply because of an election under paragraph (d)(3)(i) of this section.
(4) Record retention. To facilitate proof of compliance with reporting and other obligations under the internal revenue laws, filers must retain records of any election or revocation by the payee under paragraph (d)(3)(i) or (vii) of this section, respectively, and any notification made under paragraph (d)(3)(v) of this section for as long as the contents of the election, revocation, or notification may be material in the administration of any internal revenue law. For rules regarding record retention, see section 6001 and § 1.6001-1 of this chapter. For additional procedures applicable to record retention in the context of electronic storage, see Rev. Proc. 97-22, 1997-1 C.B. 652, Rev. Proc. 98-25, 1998-1 C.B. 689, and any subsequently published guidance.
(5) Examples. The provisions of paragraphs (d)(1) through (4) of this section may be illustrated by the following examples, which do not address any possible application of the penalty for intentional disregard under paragraph (c) of this section or the reasonable cause waiver under § 301.6724-1(a):
(i) Example 1 —(A) Facts. Filer W is required to file with the IRS by February 28, 2024, and furnish to Payee E by February 15, 2024, Form 1099-B Proceeds From Broker and Barter Exchange Transactions, because W is a broker who sold stocks on behalf of E resulting in proceeds of $5,000 during calendar year 2023. W properly withheld an amount of $1,736 under applicable backup withholding rules because E failed to furnish E's TIN to W. On the Form 1099-B, W reports as follows: Box 1d, Proceeds, $4,900; and Box 4, Federal income tax withheld, $1,761. W otherwise correctly and timely files and furnishes the Form 1099-B. E does not make an election under paragraph (d)(3)(i) of this section.
(B) Analysis. The safe harbor exception for de minimis errors provided for by paragraph (d)(1) of this section applies, because the differences between each of the amounts reported in error and the correct amounts are not more than the applicable limits. The error in the dollar amount reported in Box 1d, Proceeds, is de minimis because the difference between the amount in error ($4,900) and the correct amount ($5,000) is not more than $100; it is exactly $100. The error in the dollar amount reported in Box 4, Federal income tax withheld, is de minimis because the $25 difference between the amount in error ($1,761) and the correct amount ($1,736) is not more than $25, the limit for an error with respect to an amount reported for tax withheld.
(ii) Example 2 —(A) Facts. The facts are the same as in paragraph (d)(5)(i)(A) of this section ( Example 1 ), except that Filer W reports $1,710 as the amount in Box 4, Federal income tax withheld.
(B) Analysis. The safe harbor exception for de minimis errors provided for by paragraph (d)(1) of this section does not apply because the Form 1099-B contains a failure that is not a de minimis error. The difference between the amount in error ($1,710) and the correct amount ($1,736) is $26, which is more than the $25 limit for de minimis errors with respect to an amount reported for tax withheld.
(iii) Example 3 —(A) Facts. In 2024, Filer X provides Payee B with valid notification of a reasonable alternative manner under paragraph (d)(3)(v) of this section for making the payee election under paragraph (d)(3)(i) of this section. B timely elects pursuant to the reasonable alternative manner during 2024. B elects the reasonable alternative manner with respect to all payee statements that X is required to furnish to B. In January 2025, X decides to provide for a different, but also valid, reasonable alternative manner; X provides notification of this different reasonable alternative manner to B, and B receives notification of this different reasonable alternative manner, pursuant to paragraph (d)(3)(v)(B) of this section, on January 16, 2025. B decides to revoke B's prior election, with respect to the Forms 1099-DIV that X is required to furnish to B.
(B) Analysis. Under paragraph (d)(3)(vii) of this section, Payee B may provide the revocation to Filer X in any of three different manners. First, B may provide the revocation to X in the same manner as if B were making an election under the default manner of paragraph (d)(3)(iii) of this section; B may do so at any time. Second, having received notification from X of the different reasonable alternative manner on January 16, 2025, B may provide the revocation to X in the same manner as if B were making an election under the different reasonable alternative manner pursuant to paragraph (d)(3)(v) of this section. Third, because X previously provided notification of a reasonable alternative manner (2024 alternative) before providing notification of a different reasonable alternative manner on January 16, 2025 (2025 alternative), B may provide the revocation to X in the same manner as if B were making an election under the previous reasonable alternative manner (2024 alternative); B may do so for a period of 60 days after January 16, 2025, pursuant to paragraph (d)(3)(v)(D)( 2 ) of this section.
(iv) Example 4 —(A) Facts. In 2024, Filer Y furnishes, as required, a Form W-2, Wage and Tax Statement, to Payee C for wages paid in 2023. The correct version of this Form W-2, without any errors, de minimis or otherwise, would have reported $15,200 of Federal income tax withheld, $6,200 of social security tax withheld, $1,450 of Medicare tax withheld, and $6,000 of state income tax withheld. However, the Form W-2 that Y furnishes to C reports $15,180 of Federal income tax withheld, $6,180 of social security tax withheld, $1,430 of Medicare tax withheld, and $5,980 of state income tax withheld. The 2023 Form W-2 does not require reporting a sum total of tax withheld of all types. C does not make an election under paragraph (d)(3)(i) of this section.
(B) Analysis. For each of the four amounts of tax withheld, the difference between the amount of tax withheld that is reported on the Form W-2 and the correct amount is $20. Under paragraph (d)(2) of this section, each of these errors is a de minimis error because each is with respect to an amount of tax withheld and is not more than $25. If there are no other errors on the Form W-2, the safe harbor exception for de minimis errors provided for by paragraph (d)(1) of this section applies. The amounts of tax withheld are not combined in determining whether an error constitutes a de minimis error, if a combined amount is not required to be reported on the payee statement.
(v) Example 5 —(A) Facts. In 2024, Filer Z furnishes, as required, a Form W-2 to Payee D for wages paid in 2023. The correct version of this Form W-2, without any errors, de minimis or otherwise, would have reported $15,200 of Federal income tax withheld, $6,200 of social security tax withheld, $1,450 of Medicare tax withheld, $6,000 of state income tax withheld, and no other taxes withheld. The Form W-2 that Z furnishes to D reports $15,170 of Federal income tax withheld, $6,220 of social security tax withheld, and the correct amount of Medicare tax withheld and state income tax withheld.
(B) A single amount of tax withheld reported on the Form W-2, specifically the amount of Federal income tax withheld, differs from the correct amount by more than $25. Under paragraph (d)(2) of this section, this error is not a de minimis error. Therefore, the safe harbor exception for de minimis errors provided for by paragraph (d)(1) of this section does not apply. It is irrelevant that the sum total of taxes withheld reported on the Form W-2 ($28,840) differs from the correct total of taxes withheld ($28,850) by less than $25.
(6) Voluntary corrections. Regardless of whether the de minimis error safe harbor in this paragraph (d) provides an exception for not furnishing a particular corrected payee statement, the corrected payee statement may be furnished voluntarily if a corresponding information return reflecting the information reported on the corrected payee statement is concurrently filed.
(7) Limitations on applicability. The safe harbor exception provided for by paragraph (d)(1) of this section applies only for the purposes of payee statement penalties under section 6722. Accordingly, this safe harbor exception applies to the reporting of amounts on payee statements, including the reporting of the withholding of tax on payee statements, but does not apply for purposes of any underlying requirements to withhold or pay tax. Interest, penalties, and other additions to tax may be imposed under other sections for under-withholding or underpaying tax in any amount.
(e) Definitions —(1) Payee. See § 301.6721-1(h)(5) for the definition of payee.
(2) Payee statement. For purposes of this section the term payee statement has the same meaning as payee statement as defined by section 6724(d)(2), including any statement required to be furnished under—
(i) Section 6031(b) or (c), 6034A, or 6037(b) (relating to statements furnished by certain pass-thru entities, generally a Schedule K-1 (Form 1065), “Partner's Share of Income, Deductions, Credits, etc.,” for section 6031(b) or (c), a copy of the Schedule K-1 (Form 1041), “Beneficiary's Share of Income, Deductions, Credits, etc.,” for section 6034A, and a copy of Schedule K-1 (Form 1120S), “Shareholder's Share of Income, Deductions, Credits, etc.,” for section 6037(b));
(ii) Section 6039(b) (relating to information required in connection with certain options);
(iii) Section 6041(d) (relating to information at source, generally the recipient copy of Form 1099-MISC, “Miscellaneous Income”; Form W-2, “Wage and Tax Statement”; Form 1099-INT, “Interest Income”; and the winner's copies of Form W-2G, “Certain Gambling Winnings”);
(iv) Section 6041A(e) (relating to returns regarding payments of remuneration for services and direct sales, generally the recipient copy of Form 1099-MISC);
(v) Section 6042(c) (relating to returns regarding payments of dividends and corporate earnings and profits, generally the recipient copy of Form 1099-DIV, “Dividends and Distributions”);
(vi) Section 6043A(b) or (d) (relating to returns relating to taxable mergers and acquisitions);
(vii) Section 6044(e) (relating to returns regarding payments of patronage dividends, generally the recipient copy of Form 1099-PATR, “Taxable Distributions Received From Cooperatives”);
(viii) Section 6045(a) or (d) (relating to returns of brokers, generally reported on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, for broker transactions not involving digital assets; Form 1099-DA, Digital Asset Proceeds From Broker Transactions, for broker transactions involving digital assets; Form 1099-S, Proceeds From Real Estate Transactions, for gross proceeds from the sale or exchange of real estate; and Form 1099-MISC, Miscellaneous Income, for certain substitute payments and payments to attorneys);
(ix) Section 6045A (relating to information required in connection with transfers of covered securities to brokers);
(x) Section 6045B(c) or (e) (relating to returns relating to actions affecting basis of specified securities);
(xi) Section 6049(c) (relating to returns regarding payments of interest, generally the recipient copy of Form 1099-INT or Form 1099-OID, “Original Issue Discount”);
(xii) Section 6050A(b) (relating to reporting requirements of certain fishing boat operators, generally the recipient copy of Form 1099-MISC);
(xiii) Section 6050H(d) or (h)(2) (relating to returns relating to mortgage interest received in trade or business from individuals, generally the payor copy of Form 1098, “Mortgage Interest Statement”);
(xiv) Section 6050I(e), (g)(4), or (g)(5) (relating to returns relating to cash received in trade or business, etc., generally a copy of Form 8300, “Report of Cash Payments Over $10,000 Received In a Trade or Business”);
(xv) Section 6050J(e) (relating to returns relating to foreclosures and abandonments of security, generally the borrower copy of Form 1099-A, “Acquisition or Abandonment of Secured Property”);
(xvi) Section 6050K(b) (relating to returns relating to exchanges of certain partnership interests, generally a copy of Form 8308, “Report of a Sale or Exchange of Certain Partnership Interests”);
(xvii) Section 6050L(c) (relating to returns relating to certain dispositions of donated property, generally a copy of Form 8282, “Donee Information Return”);
(xviii) Section 6050N(b) (relating to returns regarding payments of royalties, generally the recipient copy of Form 1099-MISC);
(xix) Section 6050P(d) (relating to returns relating to the cancellation of indebtedness by certain financial entities, generally the recipient copy of Form 1099-C, “Cancellation of Debt”);
(xx) Section 6050Q(b) (relating to certain long-term care benefits, generally the policyholder and insured copies of Form 1099-LTC, “Long-Term Care and Accelerated Death Benefits”);
(xxi) Section 6050R(c) (relating to returns relating to certain purchases of fish, generally the recipient copy of Form 1099-MISC);
(xxii) Section 6051 (relating to receipts for employees, generally the employee copy of Form W-2);
(xxiii) Section 6052(b) (relating to returns regarding payment of wages in the form of group-term life insurance, generally the employee copy of Form W-2);
(xxiv) Section 6053(b) or (c) (relating to reports of tips, generally the employee copy of Form W-2);
(xxv) Section 6048(b)(1)(B) (relating to foreign trust reporting requirements, generally copies of the owner and beneficiary statements of Form 3520-A, “Annual Information Return of Foreign Trust With a U.S. Owner”);
(xxvi) Section 408(i) (relating to reports with respect to individual retirement plans on the recipient copies of Form 1099-R, “Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.”);
(xxvii) Section 6047(d) (relating to reports by plan administrators on the recipient copies of Form 1099-R);
(xxviii) Section 6050S(d) (relating to returns relating to qualified tuition and related expenses, generally the borrower copy of Form 1098-E, “Student Loan Interest Statement,” or the student copy of Form 1098-T, “Tuition Statement”);
(xxix) Section 264(f)(5)(A)(iv) (relating to reporting with respect to certain life insurance and annuity contracts);
(xxx) Section 6050T (relating to returns relating to credit for health insurance costs of eligible individuals, generally the recipient copy of Form 1099-H, “Health Coverage Tax Credit (HCTC) Advance Payments”);
(xxxi) Section 6050U (relating to charges or payments for qualified long-term care insurance contracts under combined arrangements, generally the recipient copy of Form 1099-R);
(xxxii) Section 6050W (relating to information returns with respect to payments made in settlement of payment card and third party network transactions);
(xxxiii) Section 6055 (relating to information returns reporting minimum essential coverage);
(xxxiv) Section 6056 (relating to information returns reporting on offers of health insurance coverage by applicable large employer members);
(xxxv) Section 6035 (relating to basis information with respect to property acquired from a decedent, generally Schedule A of Form 8971, Information Regarding Beneficiaries Acquiring Property from a Decedent ), other than an information return described in section 6724(d)(1)(D), whether an initial or supplemental payee statement;
(xxxvi) Section 6050Y(a)(2), 6050Y(b)(2), or 6050Y(c)(2) (relating to certain life insurance contract transactions);
(xxxvii) Section 6226(a)(2) (regarding statements relating to alternative to payment of imputed underpayment by a partnership) or under any other provision of this title that provides for the application of rules similar to section 6226(a)(2); or
(xxxviii) Section 6050Z (relating to reports relating to long-term care premium statements).
(3) Other items. The term payee statement also includes any form, statement, or schedule required to be furnished to the recipient of any amount from which tax is required to be deducted and withheld under chapters 3 or 4 of the Internal Revenue Code (or from which tax would be required to be so deducted and withheld but for an exemption under the Internal Revenue Code or any treaty obligation of the United States) (including but not limited to the recipient copy of Form 1042-S, “Foreign Person's U.S. Source Income Subject to Withholding,” or Form 8805, “Foreign Partner's Information Statement of Section 1446 Withholding Tax.”)
(4) Filer. For purposes of this section the term filer means a person that is required to furnish a payee statement as defined in paragraph (e)(2) and (3) of this section under the applicable information reporting section described in paragraph (e)(2) and (3) of this section.
(f) Adjustment for inflation. Each of the dollar amounts under paragraphs (a), (b), and (c) of this section and paragraphs (a), (b), (d)(1), and (e) of section 6722 will be adjusted for inflation pursuant to section 6722(f).
(g) Applicability dates —(1) In general. Except as provided in paragraph (g)(2) of this section, this section applies with respect to payee statements required to be furnished on or after January 1, 2024. See 26 CFR 301.6722-1, as revised April 1, 2023, for rules applicable prior to January 1, 2024.
(2) Exception. Paragraph (e)(2)(xxxv) of this section applies with respect to payee statements required to be furnished after September 17, 2024.
§ 301.6723-1   Failure to comply with other information reporting requirements.
(a) Imposition of penalty —(1) General rule. A penalty of $50 is imposed for each failure to comply timely with a specified information reporting requirement (as defined in paragraph (a)(4) of this section) or for each failure to include correct specified information. Multiple penalties are imposed with respect to a document with failures to comply with more than one of the requirements set forth in paragraph (a)(4) of this section or multiple instances of failures to comply with any one of these requirements. Nonetheless, if a failure that occurs with respect to any requirement defined in paragraph (a)(4) of this section would be subject to a penalty under both paragraph (a)(2)(i) and paragraph (a)(2)(ii) of this section, no more than one penalty is imposed for such failure. The total amount imposed on any person for all failures during any calendar year with respect to all specified information reporting requirements shall not exceed $100,000. See paragraph (a) of § 301.6724-1 for the waiver of the penalty for a failure that is due to reasonable cause.
(2) Failures subject to the penalty. The failures to which paragraph (a)(1) of this section apply are—
(i) A failure to comply timely with a specified information reporting requirement on or before the date prescribed therefor (“failure to comply timely”), and
(ii) A failure to include all the information required by a specified information reporting requirement or the inclusion of incorrect information (“failure to include correct information”).
(3) Exception for inconsequential errors or omissions. An inconsequential error or omission is not considered a failure to comply with a specified information reporting requirement. For purposes of paragraph (a)(3) of this section, an error or omission is considered inconsequential if it does not frustrate the purpose or use for which the information is intended.
(4) Specified information reporting requirement defined. For purposes of section 6723 and this section, a “specified information reporting requirement” means—
(i) The requirement to provide the notice under section 6050K(c)(1) (relating to the requirement that a transferor notify the partnership of an exchange of a partnership interest);
(ii) Any requirement contained in the regulations under section 6109 that a person—
(A) Include his or her taxpayer identification number (“TIN”) on any return, statement, or other document (other than an information return or payee statement),
(B) Include on any return, statement, or other document (other than an information return or payee statement) made with respect to another person the TIN of such person, or
(C) Furnish his or her TIN to another person;
(iii) Any requirement contained in the regulations under section 215 that a person—
(A) Furnish his or her TIN to another person, or
(B) Include on his or her return the TIN of another person; and
(iv) The requirement under section 6109(e) that a person include the TIN of any dependent on his or her return.
(b) Examples. The provisions of paragraph (a) of this section may be illustrated by the following examples which do not take into account the reasonable cause waiver under section 6724(a) and paragraph (a)(1) of § 301.6724-1.
§ 301.6724-1   Reasonable cause.
(a) Waiver of the penalty —(1) General rule. The penalty for a failure relating to an information reporting requirement as defined in paragraph (j) of this section is waived if the failure is due to reasonable cause and is not due to willful neglect.
(2) Reasonable cause defined. The penalty is waived for reasonable cause only if the filer establishes that either—
(i) There are significant mitigating factors with respect to the failure, as described in paragraph (b) of this section; or
(ii) The failure arose from events beyond the filer's control (impediment), as described in paragraph (c) of this section.
(iii) Moreover, the filer must establish that the filer acted in a responsible manner, as described in paragraph (d) of this section, both before and after the failure occurred. Thus, if the filer establishes that there are significant mitigating factors for a failure but is unable to establish that the filer acted in a responsible manner, the mitigating factors will not be sufficient to obtain a waiver of the penalty. Similarly, if the filer establishes that a failure arose from an impediment but is unable to establish that the filer acted in a responsible manner, the impediment will not be sufficient to obtain a waiver of the penalty. See paragraph (g) of this section for the reasonable cause safe harbor for persons who exercise due diligence. See paragraph (h) of this section for the reasonable cause safe harbor after an election under section 6722(c)(3)(B) and § 301.6722-1(d)(3).
(b) Significant mitigating factors. In order to establish reasonable cause under this paragraph (b), the filer must satisfy paragraph (d) of this section and must show that there are significant mitigating factors for the failure. See paragraph (c)(5) of this section for the application of this paragraph (b) to failures attributable to the actions of a filer's agent. The applicable mitigating factors include, but are not limited to—
(1) The fact that prior to the failure the filer was never required to file the particular type of return or furnish the particular type of statement with respect to which the failure occurred, or
(2) The fact that the filer has an established history of complying with the information reporting requirement with respect to which the failure occurred. In determining whether the filer has such an established history, significant consideration is given to—
(i) Whether the filer has incurred any penalty under § 301.6721-1, § 301.6722-1, or § 301.6723-1 in prior years for the failure; and
(ii) If the filer has incurred any such penalty in prior years, the extent of the filer's success in lessening its error rate from year to year.
(3) A filer may treat as a penalty not incurred any penalty under sections 6721 through 6723 that was self-assessed under section 6724(c)(3) and any penalty under section 6676(b) that was self-assessed under section 6676(d), prior to amendment or repeal by the Omnibus Budget Reconciliation Act of 1989. See paragraph (c)(5) of this section for the application of this paragraph (b) to failures attributable to the actions of a filer's agent.
(c) Events beyond the filer's control —(1) In general. In order to establish reasonable cause under this paragraph (c)(1), the filer must satisfy paragraph (d) of this section and must show that the failure was due to events beyond the filer's control. Events which are generally considered beyond the filer's control include but are not limited to—
(i) The unavailability of the relevant business records (as described in paragraph (c)(2) of this section),
(ii) An undue economic hardship relating to filing on magnetic media (as described in paragraph (c)(3) of this section),
(iii) Certain actions of the Internal Revenue Service (IRS) (as described in paragraph (c)(4) of this section),
(iv) Certain actions of an agent (as described in paragraph (c)(5) of this section), and
(v) Certain actions of the payee or any other person providing necessary information with respect to the return or payee statement (as described in paragraph (c)(6) of this section).
(2) Unavailability of the relevant business records. In order to establish reasonable cause under paragraph (c)(1) of this section due to the unavailability of the relevant business records, the filer's business records must have been unavailable under such conditions, in such manner, and for such period as to prevent timely compliance (ordinarily at least a 2-week period prior to the due date (with regard to extensions) of the required return or the required date (with regard to extensions) for furnishing the payee statement), and the unavailability must have been caused by a supervening event. A “supervening event” includes, but is not limited to—
(i) A fire or other casualty that damages or impairs the filer's relevant business records or the filer's system for processing and filing such records;
(ii) A statutory or regulatory change that has a direct impact upon data processing and that is made so close to the time that the return or payee statement is required that, for all practical purposes, the change cannot be complied with; or
(iii) The unavoidable absence (e.g., due to death or serious illness) of the person with the sole responsibility for filing a return or furnishing a payee statement.
(3) Undue economic hardship relating to filing on magnetic media. In order to establish reasonable cause under paragraph (c)(1) of this section due to an undue economic hardship for filing on magnetic media, the filer must show that it failed to file on magnetic media because the filer lacked the necessary hardware. For purposes of this paragraph (c)(3), the filer will not be considered to have acted in a responsible manner under paragraph (d) of this section unless—
(i) The filer attempted on a timely basis to contract out the magnetic media filing;
(ii) The cost of filing on magnetic media or in electronic form was prohibitive as determined at least 45 days before the due date of the returns (without regard to extensions);
(iii) The cost was supported by a minimum of two cost estimates from unrelated parties; and
(iv) The filer filed the returns on paper. Reasonable cause will not ordinarily be established under this paragraph (c)(3) if a filer received a reasonable cause waiver in any prior year under paragraph (c)(1) of this section due to an undue economic hardship relating to filing on magnetic media.
(4) Actions of the IRS. In order to establish reasonable cause under paragraph (c)(1) of this section due to certain actions of the IRS, a filer must show that the failure was due to the filer's reasonable reliance on erroneous written information from the IRS. Reasonable reliance means that the filer relied in good faith on the information. The filer shall not be considered to have relied in good faith if the IRS was not aware of all the facts when it provided the information to the filer. In order to substantiate reasonable cause under this paragraph (c)(4), the filer must provide a copy of the written information provided by the IRS and, if applicable, the filer's written request for the information.
(5) Actions of agent—imputed reasonable cause. In order to establish reasonable cause under paragraph (c)(1) of this section due to actions of an agent, the filer must show the following:
(i) The filer exercised reasonable business judgment in contracting with the agent to file timely correct returns or furnish timely correct payee statements with respect to which the failure occurred. This includes contracting with the agent and providing the proper information sufficiently in advance of the due date of the return or statement to permit timely filing of correct returns or timely furnishing of correct payee statements; and
(ii) The agent satisfied the reasonable cause criteria set forth in paragraph (b) or one of the reasonable cause criteria set forth in paragraph (c) (2) through (6) of this section.
(6) Actions of the payee or any other person. In order to establish reasonable cause under paragraph (c)(1) of this section due to the actions of the payee or any other person, such as a broker as defined in section 6045(c) providing information with respect to the return or payee statement, the filer must show either—
(i) That the failure resulted from the failure of the payee, or any other person required to provide information necessary for the filer to comply with the information reporting requirements (“any other person”), to provide information to the filer, or
(ii) That the failure resulted from incorrect information provided by the payee (or any other person) upon which information the filer relied in good faith. To substantiate reasonable cause under this paragraph (c)(6), the filer must provide documentary evidence upon request of the IRS showing that the failure was attributable to the payee (or any other person). See paragraph (d)(2) of this section for special rules relating to the availability of a waiver where the filer's failure relates to a taxpayer identification number (TIN), and the failure is attributable to actions of the payee described in paragraph (c)(6) (i) or (ii) of this section.
(d) Responsible manner —(1) In general. Acting in a responsible manner means—
(i) That the filer exercised reasonable care, which is that standard of care that a reasonably prudent person would use under the circumstances in the course of its business in determining its filing obligations and in handling account information such as account numbers and balances, and
(ii) That the filer undertook significant steps to avoid or mitigate the failure, including, where applicable—
(A) Requesting appropriate extensions of time to file, when practicable, in order to avoid the failure,
(B) Attempting to prevent an impediment or a failure, if it was foreseeable,
(C) Acting to remove an impediment or the cause of a failure, once it occurred, and
(D) Rectifying the failure as promptly as possible once the impediment was removed or the failure was discovered. Ordinarily, a rectification is considered prompt if it is made within 30 days after the date the impediment is removed or the failure is discovered or on the earliest date thereafter on which a regular submission of corrections is made. Submissions will be considered regular only if made at intervals of 30 days or less. A failure may be rectified by filing or correcting the information return, furnishing or correcting the payee statement, or by providing or correcting the information to satisfy the specified information reporting requirement with respect to which the failure occurs. Paragraph (d)(ii)(D) of this section does not apply with respect to information the filer is prohibited from altering under specific information reporting rules. See § 1.6045-4(i)(5) of this chapter.
(2) Special rule for filers seeking a waiver pursuant to paragraph (c)(6) of this section. A filer seeking a waiver for reasonable cause pursuant to paragraph (c)(6) of this section with respect to a failure resulting from a missing or an incorrect TIN will be deemed to have acted in a responsible manner in compliance with this paragraph (d) only if the filer satisfies the requirements of paragraph (e) of this section (relating to missing TINs) or paragraph (f) of this section (relating to incorrect TINs), whichever is applicable.
(e) Acting in a responsible manner—special rules for missing TINs —(1) In general. A filer that is seeking a waiver for reasonable cause under paragraph (c)(6) of this section will satisfy paragraph (d)(2) of this section with respect to establishing that a failure to include a TIN on an information return resulted from the failure of the payee to provide information to the filer (that is, a missing TIN) only if the filer makes the initial and, if required, the annual solicitations described in this paragraph (e) (required solicitations). For purposes of this section, a number is treated as a missing TIN if the number does not contain nine digits or includes one or more alpha characters (a character or symbol other than an Arabic numeral) as one of the nine digits. A solicitation means a request by the filer for the payee to furnish a correct TIN. See paragraph (f) of this section for the rules that a filer must follow to establish that the filer acted in a responsible manner with respect to providing incorrect TINs on information returns. See paragraph (e)(1)(vi)(A) of this section for alternative solicitation requirements. See paragraph (g) of this section for the safe harbor due diligence rules.
(i) Initial solicitation. An initial solicitation for a payee's correct TIN must be made at the time an account is opened. The term account includes accounts, relationships, and other transactions. However, a filer is not required to make an initial solicitation under this paragraph (e)(1)(i) with respect to a new account if the filer has the payee's TIN and uses that TIN for all accounts of the payee. For example, see § 31.3406(h)-3(a) of this chapter. If the account is opened in person, the initial solicitation may be made by oral or written request, such as on an account creation document. If the account is opened by mail, telephone, or other electronic means, the TIN may be requested through such communications. If the account is opened by the payee's completing and mailing an application furnished by the filer that requests the payee's TIN, the initial solicitation requirement is considered met. If a TIN is not received as a result of an initial solicitation, the filer may be required to make additional solicitations (annual solicitations).
(ii) First annual solicitation. Except as provided in paragraph (e)(1)(vi) of this section, a filer must undertake an annual solicitation if a TIN is not received as a result of an initial solicitation (or if the filer was not required to make an initial solicitation under paragraph (e)(1)(i) of this section and the filer has not received a payee's TIN). The first annual solicitation must be made on or before December 31 of the year in which the account is opened (for accounts opened before December) or January 31 of the following year (for accounts opened in the preceding December) (“annual solicitation period”).
(iii) Second annual solicitation. If the TIN is not received as a result of the first annual solicitation, the filer must undertake a second annual solicitation. The second annual solicitation must be made after the expiration of the annual solicitation period and on or before December 31 of the year immediately succeeding the calendar year in which the account is opened.
(iv) Additional requirements. After receiving a TIN, a filer must include that TIN on any information returns the original due date of which (with regard to extensions) is after the date that the filer receives the TIN.
(v) Failures to which a solicitation relates. The initial and first annual solicitations relate to failures on returns filed for the year in which an account is opened. The second annual solicitation relates to failures on returns filed for the year immediately following the year in which an account is opened and for succeeding calendar years.
(vi) Exceptions and limitations. (A) The solicitation requirements under this paragraph (e) do not apply to the extent an information reporting provision under which a return, as defined in paragraph (h) of § 301.6721-1, is filed provides specific requirements relating to the manner or the time period in which a TIN must be solicited. In that event, the requirements of this paragraph (e) will be satisfied only if the filer complies with the manner and time period requirements of the specific information reporting provision and the provisions of this paragraph (e) to the extent applicable. Also, see section 3406(e) which provides rules on the manner and time period in which a TIN must be provided for certain accounts with respect to interest, dividends, patronage dividends, and amounts subject to broker reporting.
(B) An annual solicitation is not required to be made for a year under this paragraph (e) with respect to an account if no payments are made to the account for such year or if no return as defined in paragraph (g) of § 301.6721-1 is required to be filed for the account for the year.
(C) If a filer fails to make one (or more) of the required solicitations under paragraphs (e)(1) (i), (ii), and (iii) of this section, the filer may satisfy the requirements of this section by—
( 1 ) Making two consecutive annual solicitations in subsequent years (“make-up solicitations”), and
( 2 ) Satisfying paragraph (e)(1)(iv) of this section.
For example, a filer who has made none of the required solicitations may satisfy the requirements of this section by making two consecutive solicitations. In determining whether a filer has made two consecutive solicitations, years to which paragraph (e)(1)(vi)(B) of this section applies shall be disregarded. If a filer fails to make the initial solicitation under paragraph (e)(1)(i) of this section, the make-up solicitations described in this paragraph (e)(1)(vi)(C) may be made in the years in which the first and second annual solicitations are required to be made; however, the penalty will apply with respect to the year in which the filer failed to make the initial solicitation. The penalty will apply to failures with respect to years for which a required solicitation is not made and to failures with respect to all subsequent years until the filer conducts its make-up solicitations. The penalty will not apply with respect to the year in which the first make-up solicitation is made (unless it is also the year in which the filer fails to make its initial solicitation) if the second make-up solicitation is made in the following year.
(D) A financial institution is not required to make an annual solicitation by mail on accounts with “stop-mail” or “hold-mail” instructions, provided the filer furnishes the solicitation material to the payee in the same manner as it furnishes other mail.
(E) A filer is not required to make annual solicitations by mail on accounts with respect to which the filer has an undeliverable address, that is, where other mailings to that address have been returned to the filer because the address was incorrect and no new address has been provided to the filer.
(F) Except as provided in paragraphs (e)(1)(vi)(A) and (C) of this section, no more than two annual solicitations are required under this paragraph (e) in order for a filer to establish reasonable cause.
(2) Manner of making annual solicitations—by mail or telephone —(i) By mail. A mail solicitation must include—
(A) A letter informing the payee that he or she must provide his or her TIN and that he or she is subject to a $50 penalty imposed by the IRS under section 6723 if he or she fails to furnish his or her TIN,
(B) A Form W-9 or an acceptable substitute form, as defined in § 31.3406 (h)-3 (a), (b), or (c) of this chapter, on which the payee may provide the TIN, and
(C) A return envelope for the payee to provide the TIN which may be, but is not required to be, postage prepaid.
(ii) By telephone. An annual solicitation may be made by telephone if the solicitation procedure is reasonably designed and carried out in a manner that is conducive to obtaining the TIN. An annual solicitation is made pursuant to this paragraph (e)(2)(ii) for a failure if the filer—
(A) Completes a call to each person with a missing TIN and speaks to an adult member of the household, or to an officer of the business or the organization,
(B) Requests the TIN of the payee,
(C) Informs the payee that he or she is subject to a $50 penalty imposed by the IRS under section 6723 if he or she fails to furnish his or her TIN,
(D) Maintains contemporaneous records showing that the solicitation was properly made, and
(E) Provides such contemporaneous records to the IRS upon request.
(f) Acting in a responsible manner—special rules for incorrect TINS —(1) In general. A filer that is seeking a waiver for reasonable cause under paragraph (c)(6) of this section will satisfy paragraph (d)(2) of this section with respect to establishing that a failure resulted from incorrect information provided by the payee or any other person (that is, inclusion of an incorrect TIN) on an information return only if the filer makes the initial and annual solicitations described in this paragraph (f). See paragraph (e)(1) of this section for the definition of the term solicitation. See paragraph (f)(5)(i) of this section for alternative solicitation requirements. See paragraph (g) of this section for the safe harbor due diligence rules.
(i) Initial solicitation. An initial solicitation for a payee's correct TIN must be made at the time the account is opened. The term account includes accounts, relationships, and other transactions. However, a filer is not required to make an initial solicitation under this paragraph (f)(1)(i) with respect to a new account if the filer has the payee's TIN and uses that TIN for all accounts of the payee. For example, see § 31.3406(h)-3(a) of this chapter. No additional solicitation is required after the filer receives the TIN unless the IRS or, in some cases, a broker notifies the filer that the TIN is incorrect. Following such notification the filer may be required to make an annual solicitation to obtain the correct TIN as provided in paragraphs (f)(1)(ii) and (iii) of this section.
(ii) First annual solicitation. Except as provided in paragraph (f)(5) of this section, a filer must undertake an annual solicitation only if the payor has been notified of an incorrect TIN and such account contains the incorrect TIN at the time of the notification. The first annual solicitation must be made as required by paragraph (f) (2) or (3) of this section, whichever applies. An account contains an incorrect TIN at the time of notification if the name and number combination on the account matches the name and number combination set forth on the notice from the IRS or a broker. A filer may be notified of an incorrect TIN by the IRS or by a broker pursuant to section 3406(a)(1)(B) or by a penalty notice issued by the IRS pursuant to section 6721. Except as otherwise provided in this section, the annual solicitation required by this paragraph (f) must be made on or before December 31 of the year in which the filer is notified of the incorrect TIN or by January 31 of the following year if the filer is notified of an incorrect TIN in the preceding December.
(iii) Second annual solicitation. A filer must undertake a second annual solicitation as required by paragraph (f) (2) or (3) of this section, whichever applies, if the filer is notified in any year following the year of the notification described in paragraph (f)(1)(ii) of this section that the account of a payee contains an incorrect TIN, as described in paragraph (f)(1)(ii) of this section.
(iv) Additional requirements. Upon receipt of a TIN, a filer must include that TIN on any information returns the original due date of which (with regard to extensions) is after the date that the filer receives the TIN.
(2) Manner of making annual solicitation if notified pursuant to section 6721. A filer that has been notified of an incorrect TIN by a penalty notice or other notification pursuant to section 6721 may satisfy the solicitation requirement of this paragraph (f) either by mail, in the manner set forth in paragraph (e)(2)(i) of this section; by telephone, in the manner set forth in paragraph (e)(2)(ii) of this section; or by requesting the TIN in person.
(3) Coordination with solicitations under section 3406(a)(1)(b). (i) A filer that has been notified of an incorrect TIN pursuant to section 3406(a)(1)(B) (except filers to which § 31.3406(d)-5(b)(4)(i)(A) of this chapter applies) will satisfy the solicitation requirement of this paragraph (f) only if it makes a solicitation in the manner and within the time period required under § 31.3406(d)-5(d)(2)(i) or (g)(1)(ii) of this chapter, whichever applies.
(ii) A filer that has been notified of an incorrect TIN by a notice pursuant to section 6721 (except filers to which § 31.3406(d)-5(b)(4)(i)(A) of this chapter applies) is not required to make the annual solicitation of this paragraph (f) if—
(A) The filer has received an effective notice pursuant to section 3406(a)(1)(B) with respect to the same payee, either during the same calendar year or for information returns filed for the same year; and
(B) The filer makes a solicitation in the manner and within the time period required under § 31.3406(d)-5(d)(2)(i) or (g)(1)(ii) of this chapter, whichever applies, before the filer is required to make the annual solicitation of this paragraph (f).
(iii) A filer that has been notified of an incorrect TIN by a notice pursuant to section 6721 with respect to a fiduciary or nominee account to which § 31.3406(d)-5(b)(4)(i)(A) of this chapter applies is required to make the annual solicitation of this paragraph (f).
(4) Failures to which a solicitation relates. The initial solicitation relates to failures on returns filed for the year an account is opened and for any succeeding year that precedes the year in which the filer receives a notification of an incorrect TIN. The first and second annual solicitations relate to failures on returns filed for the year in which a notification of an incorrect TIN is received. The second solicitation also relates to failures on returns filed for succeeding calendar years.
(5) Exceptions and limitations. (i) The solicitation requirements under this paragraph (f) do not apply to the extent that an information reporting provision under which a return, as defined in § 301.6721-1(h), is filed provides specific requirements relating to the manner or the time period in which a TIN must be solicited. In that event, the requirements of this paragraph (f) will be satisfied only if the filer complies with the manner and time period requirement under the specific information reporting provisions and this paragraph (f), to the extent applicable.
(ii) An annual solicitation is not required to be made for a year under this paragraph (f) with respect to an account if no payments are made to the account for such year or if no return as defined in § 301.6721-1(h) is required to be filed for the account for such year.
(iii) If a filer fails to make one (or more) of the required solicitations under paragraph (f)(1) (i), (ii), and (iii) of this section, the filer may satisfy the requirements of this section by:
(A) Making two consecutive annual solicitations in subsequent years (“make-up solicitations”), and
(B) Satisfying paragraph (f)(1)(iv) of this section.
For example, a filer who has made none of the required solicitations may satisfy the requirements of this section by making two consecutive solicitations. In determining whether a filer has made two consecutive solicitations, years to which paragraph (f)(5)(ii) of this section applies are disregarded. If a filer fails to make the initial solicitation under paragraph (f)(1)(i) of this section, the make-up solicitations described in this paragraph (f)(5)(iii) may be made in the years in which the first and second annual solicitations are required to be made; however, the penalty will apply with respect to the year in which the filer failed to make the initial solicitation. The penalty will apply to failures in years in which a required solicitation is not made and to failures with respect to all subsequent years until the filer conducts its make-up solicitations. The penalty will not apply with respect to the year in which the first make-up solicitation is made (unless it is also the year in which the filer fails to make the initial solicitation) if the second make-up solicitation is made in the following year.
(iv) A financial institution is not required to make an annual solicitation by mail on accounts with “stop-mail” or “hold-mail” instructions, provided the filer furnishes the solicitation material to the payee in the same manner as it furnishes other mail.
(v) A filer is not required to make annual solicitations by mail on accounts with respect to which the filer has an undeliverable address, i.e., where other mailings to that address have been returned to the filer because the address was incorrect and no new address has been provided to the filer.
(vi) In general, except as provided in paragraph (f)(5) (i) and (iii) of this section, no more than two annual solicitations are required under this paragraph (f) in order for a filer to establish reasonable cause. However, a filer who complies with this paragraph (f) during a calendar year after receiving a notice under section 6721 and who later during the same calendar year receives a notice pursuant to section 3406 may be required to undertake additional annual mailings in such calendar year pursuant to section 3406(a)(1)(B) in order to satisfy the annual solicitation requirement in paragraph (f)(3) of this section.
(g) Due diligence safe harbor —(1) In general. A filer may establish reasonable cause with respect to a failure relating to an information reporting requirement as described in paragraph (j) of this section if the filer exercises due diligence with respect to failures described in sections 6721 through 6723. Paragraphs (g)(2) through (7) of this section provide special rules on the exercise of due diligence with respect to TINs for an exception to a penalty under sections 6721 through 6723 for—
(i) A failure to provide a correct TIN on any—
(A) Information return as defined in § 301.6721-1(h);
(B) Payee statement as defined in § 301.6722-1(e)(2) and (3); or
(C) Document as described in § 301.6723-1(a)(4); or
(ii) The failure merely to provide a TIN as described in § 301.6723-1(a)(4)(ii).
(2) General rule. A filer is not subject to a penalty for failure to provide the payee's correct TIN on an information return, if the payee has certified, under penalties of perjury, that the TIN provided to the filer was the payee's correct TIN, and the filer included such TIN on the information return before being notified by the IRS (or a broker) that such TIN is incorrect.
(3) Due diligence defined for accounts opened and instruments acquired after December 31, 1983 —(i) In general. For a filer of a reportable interest or dividend payment (other than in a window transaction) to be considered to have exercised due diligence in furnishing the correct TIN of a payee with respect to an account opened or an instrument acquired after December 31, 1983 (that is, an account or instrument that is not a pre-1984 account nor a window transaction), the filer must use a TIN provided by the payee under penalties of perjury on information returns filed with the IRS. Therefore, if a filer permits a payee to open an account without obtaining the payee's TIN under penalties of perjury and files an information return with the IRS with a missing or an incorrect TIN, the filer will be liable for the $250 penalty for the year with respect to which such information return is filed. However, in its administrative discretion, the IRS will not enforce the penalty with respect to a calendar year if the certified TIN is obtained after the account is opened and before December 31 of such year, provided that the filer exercises due diligence in processing such number, that is, the filer uses the same care in processing the TIN provided by the payee that a reasonably prudent filer would use in the course of the filer's business in handling account information such as account numbers and balances.
(ii) Notification of incorrect TIN. Once notified by the IRS (or a broker) that a number is incorrect, a filer is liable for the penalty for all prior years in which an information return was filed with that particular incorrect number if the filer has not exercised due diligence with respect to such years. A pre-existing certified TIN does not constitute an exercise of due diligence after the IRS or a broker notifies the filer that the number is incorrect unless the filer undertakes the actions described in § 31.3406(d)-5(d)(2)(i) of this chapter with respect to accounts receiving reportable payments described in section 3406(b)(1) and reported on information returns described in sections 6724(d)(1)(A)(i) through (iv).
(iii) Inadvertent processing. A filer described in this paragraph (g)(3) is liable for the penalty if the filer obtained a certified TIN for a payee but inadvertently processed the TIN or name incorrectly on the information return unless the filer exercised that degree of care in processing the TIN and name and in furnishing it on the information return that a reasonably prudent filer would use in the course of the filer's business in handling account information, such as account numbers and account balances.
(4) Instruments not transferred with assistance of broker —(i) In general. If a filer files an information return with a missing or an incorrect TIN with respect to an instrument transferred without the assistance of a broker, the filer will be considered to have exercised due diligence with respect to a readily tradable instrument that is not part of a pre-1984 account with the filer if the filer records on its books a transfer in which the filer was not a party. This paragraph (g)(4)(i) applies until the calendar year in which the filer receives a certified TIN from the payee.
(ii) Solicitation of TIN not required. A filer described in paragraph (g)(4)(i) of this section is not required to solicit the TIN of a payee of an account with a missing TIN in order to be considered as having exercised due diligence in a subsequent calendar year under the rule set forth in paragraph (g)(4)(i) of this section.
(iii) Payee provides incorrect TIN. If a payee provides a TIN (whether or not certified) to a filer described in paragraph (g)(4)(i) of this section who records on its books a transfer in which it was not a party, the filer is considered to have exercised due diligence under the rule set forth in paragraph (g)(4)(i) of this section if the transfer is accompanied with a TIN provided that the filer uses the same care in processing the TIN provided by a payee that a reasonably prudent filer would use in the course of the filer's business in handling account information, such as account numbers and account balances. Thus, a filer will not be liable for the penalty if the filer uses the TIN provided by the payee on information returns that it files, even if the TIN provided by the payee is later determined to be incorrect. However, a filer will not be considered as having exercised due diligence under paragraph (g)(4)(i) of this section after the IRS or a broker notifies the filer that the number is incorrect unless the filer undertakes the required additional actions described in paragraph (g)(2) of this section.
(5) Filer incurred an undue hardship —(i) In general. A filer of a post-1983 account or instrument is not liable for a penalty under section 6721(a) for filing an information return with a missing or an incorrect TIN if the IRS determines that the filer could have satisfied the due diligence requirements but for the fact that the filer incurred an undue hardship. An undue hardship is an extraordinary or unexpected event such as the destruction of records or place of business of the filer by fire or other casualty (or the place of business of the filer's agent who under a pre-existing written contract had agreed to fulfill the filer's due diligence obligations with respect to the account subject to the penalty and there was no means for the obligations to be performed by another agent or the filer). Undue hardship will also be found to exist if the filer could have met the due diligence requirements only by incurring an extraordinary cost.
(ii) Only IRS makes undue hardship determinations. A filer must obtain a determination from the IRS to establish that the filer satisfies the undue hardship exception to the penalty under section 6721(a) for the failure to include the correct TIN on an information return for the year with respect to which the filer is subject to the penalty. A determination of undue hardship may be established only by submitting a written statement to the IRS signed under penalties of perjury that sets forth all the facts and circumstances that make an affirmative showing that the filer could have satisfied the due diligence requirements but for the occurrence of an undue hardship. Thus, the statement must describe the undue hardship and make an affirmative showing that the filer either was in the process of exercising or stood ready to exercise due diligence when the undue hardship occurred. A filer may request an undue hardship determination by submitting a written statement to the address provided with the notice proposing penalty assessment (for example, Notice 972CG) or the notice of penalty assessment (for example, CP15 or CP215), or as otherwise directed by the IRS in forms, instructions, or publications.
(6) Acquisitions of pre-1984 accounts or instruments —(i) In general. A pre-1984 account or instrument of a filer that is exchanged for an account or instrument of another filer pursuant to a statutory merger of the other filer or the acquisition of the accounts or instruments of such filer is not transformed into a post-1983 account or instrument if the merger or acquisition occurs after December 31, 1983, because the exchange occurs without the participation of the payee.
(ii) Establishing due diligence was exercised for accounts or instruments. The acquiring taxpayer described in this paragraph (g)(6) may rely upon the business records and past procedures of the merged filer or the filer whose accounts or instruments were acquired in order to establish that due diligence has been exercised on the acquired pre-1984 and post-1983 accounts or instruments to avoid the penalty under section 6721(a) with respect to information returns that have been or will be filed.
(7) Limited reliance on certain pre-2001 rules. A filer may rely on the due diligence rules set forth in 26 CFR 35a.9999-1, 35a.9999-2, and 35a.9999-3 in effect prior to January 1, 2001 ( see 26 CFR 35a.9999-1, 35a.9999-2, and 35a.9999-3, revised April 1, 1999), solely for the definitions of terms or phrases used in this paragraph (g).
(h) Reasonable cause safe harbor after election under section 6722(c)(3)(B). A filer may establish reasonable cause with respect to a failure relating to an information reporting requirement as described in paragraph (j) of this section under this paragraph (h) if the failure is a result of an election under § 301.6722-1(d)(3)(i) and the presence of a de minimis error or errors as described in sections 6721(c)(3) and 6722(c)(3) and §§ 301.6721-1(e) and 301.6722-1(d) on a filed information return or furnished payee statement. This paragraph (h) applies only if the safe harbor exceptions provided for by § 301.6721-1(e)(1) or § 301.6722-1(d)(1) would have applied, but for an election under § 301.6722-1(d)(3)(i). To establish reasonable cause and not willful neglect under this paragraph (h), the filer must file a corrected information return or furnish a corrected payee statement, or both, as applicable, within 30 days of the date of the election under § 301.6722-1(d)(3)(i). Where specific rules provide for additional time in which to furnish a corrected payee statement and file a corrected information return, the 30-day rule does not apply and the specific rules will apply. See for example §§ 31.6051-1(c) through (d) and 31.6051-2(b). If the filer rectifies the failure outside of this 30-day period, the determination of reasonable cause will be on a case-by-case basis.
(i) [Reserved]
(j) Failures to which this section relates. For purposes of this section, a failure relating to an information reporting requirement means—
(1) A failure described under § 301.6721-1(a)(2) relating to the failure to file timely correct information returns as defined in section 6724(d)(1),
(2) A failure described under § 301.6722-1(a)(2) relating to the failure to furnish timely a correct payee statement as defined in section 6724(d)(2), and
(3) A failure described under § 301.6723-1(a)(2) relating to the failure to timely comply with and to include correct specified information as defined in section 6724(d)(3).
(k) Examples. The provisions of this section may be illustrated by the following examples:
(1) Example 1 —(i) Facts. On August 1, 2023, Individual A, an independent contractor, establishes a relationship (account) with Institution L, which pays A amounts reportable under section 6041. When A opens the account L requests that A supply his TIN on the account creation document. A fails to provide his TIN. On October 2, 2023, L mails a solicitation for A's TIN that satisfies the requirement of paragraph (e)(1)(ii) of this section. A does not provide a TIN to L during 2023. L timely files an information return subject to section 6721, that does not contain A's TIN, for payments made during the 2023 calendar year with respect to A's account. A penalty is imposed on L, pursuant to § 301.6721-1(a)(2), for L's failure to file a correct information return because A's TIN was not shown on the return. The penalty will be waived, however, if L establishes that the failure was due to reasonable cause as defined in this section.
(ii) Analysis. To establish reasonable cause under this section, L must satisfy both paragraphs (c)(6) and (d) of this section. The criteria for obtaining a waiver under paragraphs (c)(6) and (d) of this section are as follows:
(A) L acted in a responsible manner in attempting to satisfy the information reporting requirement as described in paragraph (d) of this section; and
(B) L demonstrates that the failure arose from events beyond L's control, as described in paragraph (c)(6) of this section.
(iii) Analysis (continued). Pursuant to paragraph (d)(2) of this section, L may demonstrate that it acted in a responsible manner only by complying with paragraph (e) of this section. Paragraph (e) of this section requires a filer to request a TIN at the time the account is opened (the initial solicitation) and, if the filer does not receive the TIN at that time, to solicit the TIN on or before December 31 of the year the account is opened (for accounts opened before December) or January 31 of the following year (for accounts in the preceding December) (the annual solicitation). Because L has performed these solicitations within the time and in the manner prescribed by paragraph (e) of this section, L has acted in a responsible manner as described in paragraph (d) of this section. L satisfies paragraph (c)(6) of this section because under the facts, L can show that the failure was caused by A's failure to provide a TIN, an event beyond L's control. As a result, L has established reasonable cause under paragraph (a)(2) of this section. Therefore, the penalty imposed under § 301.6721-1(a)(2) for the failure on the 2023 information return is waived. See section 3406(a)(1)(A), which requires L to impose backup withholding on reportable payments to A if L has not received A's TIN.
(2) Example 2 —(i) Facts. On August 1, 2023, Individual B opens an account with Bank M, which pays B interest reportable under section 6049. When B opens the account, M requests that B supply his TIN on the account creation document. B provides his TIN to M. On February 28, 2024, M includes the TIN that B provided on the Form 1099-INT, Interest Income, for the 2023 calendar year. In October 2024 the IRS, pursuant to section 3406(a)(1)(B), notifies M that the 2023 return filed for B contains an incorrect TIN. In April 2025 a penalty is imposed on M, pursuant to § 301.6721-1(a)(2), for M's failure to file a correct information return for the 2023 calendar year, that is, the return did not contain B's correct TIN. The penalty will be waived, however, if M establishes that the failure was due to reasonable cause as defined in this section.
(ii) Analysis. To establish reasonable cause under this section, M must satisfy the criteria in both paragraphs (c)(6) and (d) of this section. Pursuant to paragraph (d)(2) of this section, M can demonstrate that it acted in a responsible manner only if M complies with paragraph (f) of this section. Paragraph (f) of this section requires a filer to request a TIN at the time the account is opened, an initial solicitation. Under paragraph (f)(4) of this section the initial solicitation relates to failures on returns filed for the year an account is opened. Because M performed the initial solicitation in 2023 in the time and manner prescribed in paragraph (f)(1)(i) of this section and reflected the TIN received from B on the 2023 return as required by paragraph (f)(1)(iv) of this section, M has acted in a responsible manner as described in paragraph (d) of this section. M satisfies paragraph (c)(6) of this section because, under the facts, M can show that the failure was caused by B's failure to provide a correct TIN, an event beyond M's control. As a result, M has established reasonable cause under paragraph (a)(2) of this section. Therefore, the penalty imposed under § 301.6721-1(a)(2) for the failure on the 2023 information return is waived. See section 3406(a)(1)(B), which requires M to impose backup withholding on reportable payments to B if M has not received B's correct TIN.
(3) Example 3 —(i) Table.
Table 1 to Paragraph (k)(3)(i)
(ii) Facts. The facts are the same as in paragraph (k)(2)(i) of this section ( Example 2 ). Under § 31.3406(d)-5(d)(2)(i) of this chapter and paragraph (f)(3) of this section, within 15 days of the October 2024 notification of the incorrect TIN from the IRS, M solicits the correct TIN from B. B fails to respond. M timely files the return for 2024 with respect to the account setting forth B's incorrect TIN. In October 2025 the IRS notifies M, pursuant to section 3406(a)(1)(B), that the 2024 return contains an incorrect TIN. In April 2026, a penalty is imposed on M pursuant to § 301.6721-1(a)(2) for M's failure to include B's correct TIN on the return for 2024. The penalty will be waived, if M establishes that the failure was due to reasonable cause as defined in this section.
(iii) Analysis. M must satisfy the reasonable cause criteria in paragraphs (c)(6) and (d) of this section. M may demonstrate that it acted in a responsible manner as required under paragraph (d) of this section only by complying with paragraph (f) of this section. Paragraph (f) of this section requires a filer to make an initial solicitation for a TIN when an account is opened. Further, a filer must make an annual solicitation for a TIN by mail within 15 business days after the date that the IRS notifies the filer of an incorrect TIN pursuant to section 3406(a)(1)(B). M made the initial solicitation for the TIN in 2023 and, after being notified of the incorrect TIN in October 2024, the first annual solicitation within the time and manner prescribed by § 31.3406(d)-5(d)(2)(i) of this chapter and paragraphs (f)(1)(ii) and (f)(2) of this section. M acted in a responsible manner. M satisfies paragraph (c)(6) of this section because, under the facts, M can show that the failure was caused by B's failure to provide his correct TIN, an event beyond M's control. As a result M has established reasonable cause under paragraph (a)(2) of this section. Therefore, the penalty imposed under § 301.6721-1(a)(2) for the failure on the 2024 return is waived due to reasonable cause.
(4) Example 4 —(i) Table.
Table 2 to Paragraph (k)(4)(i)
(ii) Facts. The facts are the same as in paragraph (k)(3)(ii) of this section ( Example 3 ). M timely solicits B's TIN in October 2025, which B fails to provide. M files the return for 2025 with the incorrect TIN. In April 2027 the IRS informs M that the 2025 return contains an incorrect TIN. M does not solicit a TIN from B in 2026 and files a return for 2026 with B's incorrect TIN. M seeks a waiver of the penalty under § 301.6721-1(a)(2) for reasonable cause.
(iii) Analysis. M must satisfy the reasonable cause criteria in paragraphs (c)(6) and (d) of this section. Because M made the initial and two annual solicitations as required by paragraph (f) of this section, M has demonstrated that it acted in a responsible manner and is not required to solicit B's TIN in 2026. See paragraph (f)(5)(vi) of this section. M satisfies paragraph (c)(6) of this section because, under the facts, M can show that the failure was caused by B's failure to provide his correct TIN, an event beyond M's control. Therefore, M has established reasonable cause under paragraph (a)(2) of this section.
(5) Example 5 —(i) Facts. In 2023, Mortgage Finance Company N lends money to C to purchase property in a transaction subject to reporting under section 6050H. As part of the transaction, C gives N a promissory note providing for repayment of principal and the payment of interest. At the time C incurs the obligation N requests C's TIN, as required under § 1.6050H-2(f) of this chapter. C fails to provide the TIN as required by § 1.6050H-2(f) of this chapter. N sends solicitations by mail in 2023 and 2024 for the missing TIN, which C fails to provide. However, for 2025 N fails to send the solicitation required by § 1.6050H-2(f) of this chapter. N files returns for the 2023, 2024, and 2025 calendar years pursuant to section 6050H without C's TIN.
(ii) Analysis. Although N made the initial and the first annual solicitations in 2023 and the second annual solicitation in 2024, N did not solicit the TIN in 2025 as required under section 6050H, which requires continued annual solicitations until the TIN is obtained. Therefore, under paragraph (e)(1)(vi)(A) of this section the penalty imposed under § 301.6721-1(a) for the 2025 information return is not waived.
(6) Example 6 —(i) Table.
Table 3 to Paragraph (k)(6)(i)
(ii) Facts. On October 2, 2023, Individual E opens an account with Institution R, which pays E amounts reportable under section 6049. When E opens the account, R requests that E supply his TIN on an account creation document, which E does. Pursuant to paragraph (f)(1)(iv) of this section, R uses the TIN furnished by E on the information return filed for the 2023 calendar year. In October 2024 the IRS notifies R, pursuant to section 3406(a)(1)(B), that the information return filed for E for the 2023 calendar year contained an incorrect TIN. At the time R receives this notification, E's account contains the incorrect TIN. On December 31, 2024, R telephones E pursuant to paragraphs (f)(2) and (e)(2)(ii) of this section and receives different TIN information from E. R uses this information on the return that it files timely for E for the 2024 calendar year, that is, in February 2025. In April 2025, the IRS notifies R, pursuant to § 301.6721-1(a)(2), that the information return filed for the 2023 calendar year contains an incorrect TIN. The penalty will be waived, however, if R establishes the failure was due to reasonable cause as defined in this section.
(iii) Analysis. To establish reasonable cause under this section, R must satisfy the criteria in both paragraphs (c)(6) and (d)(2) of this section. Pursuant to paragraph (d)(2) of this section, R can demonstrate that it acted in a responsible manner only if it complies with paragraph (f) of this section. R solicited E's TIN at the time the account was opened (initial solicitation). Under paragraphs (d)(2) and (f)(4) of this section, the initial solicitation relates to failures on returns filed for the year in which an account is opened (that is, 2023) and for subsequent years until the calendar year in which the filer receives a notification of an incorrect TIN pursuant to section 3406. Because E failed to provide the correct TIN upon request, the failure arose from events beyond R's control as described in paragraph (c)(6) of this section. Therefore, the penalty with respect to the failure on the 2023 calendar year information return is waived due to reasonable cause.
(7) Example 7 —(i) Facts. The facts are the same as in paragraph (k)(6)(ii) of this section ( Example 6 ). In April 2026 the IRS notifies R, pursuant to § 301.6721-1(a)(2), that the information return filed for the 2024 calendar year for E contained an incorrect TIN.
(ii) Analysis. To establish reasonable cause for the failure under this section, R must satisfy the criteria in both paragraphs (c)(6) and (d)(2) of this section. Pursuant to paragraph (d)(2) of this section, R may establish that it acted in a responsible manner only by complying with paragraph (f) of this section. Pursuant to paragraph (f)(1)(ii) of this section, R must make an annual solicitation after being notified of an incorrect TIN if the payee's account contains the incorrect TIN at the time of the notification. Paragraph (f)(3) of this section provides that if the filer is notified, pursuant to section 3406(a)(1)(B), the time and manner of making an annual solicitation is that required under § 31.3406(d)-5(g)(1)(ii) of this chapter. Section 31.3406(d)-5(g)(1)(ii) of this chapter requires R to notify E by mail within 15 business days after the date of the notice from the IRS, which R failed to do. As a result, R has failed to act in a responsible manner with respect to the failure on the 2024 information return, and the penalty will not be waived due to reasonable cause.
(8) Example 8 —(i) Facts. On January 31, 2024, Institution Q timely furnishes Form 1099-MISC, Miscellaneous Information, to Individual F. Also on January 31, 2024, Q timely files a corresponding Form 1099-MISC with the IRS. On March 15, 2024, Q becomes aware of de minimis errors (within the meaning of § 301.6722-1(d)(2)) made on the Form 1099-MISC furnished to F and filed with the IRS. On March 20, 2024, F makes an election under § 301.6722-1(d)(3)(i) with respect to the Form 1099-MISC that Q furnished to F. Q furnishes a corrected Form 1099-MISC to F and files a corrected Form 1099-MISC with the IRS by April 19, 2024, which date is 30 days from March 20, 2024.
(ii) Analysis. The election by F and the presence of de minimis errors on the Forms 1099-MISC make the penalties under sections 6721 and 6722 applicable to Q. See §§ 301.6721-1(e)(3) and 301.6722-1(d)(3). Q, however, rectified the failures within 30 days of March 20, 2024, the date F made the election under § 301.6722-1(d)(3)(i) with respect to the Form 1099-MISC that Q furnished to F. Therefore, under paragraph (h) of this section, Q is considered to have established reasonable cause, and under section 6724 and paragraph (a)(1) of this section the penalties under sections 6721 and 6722 are waived.
(9) Example 9 —(i) Facts. The facts are the same as in paragraph (k)(8)(i) of this section ( Example 8 ), except that Q does not become aware of de minimis errors made on the Form 1099-MISC furnished to F and filed with the IRS until June 26, 2024. Additionally, Q furnishes the corrected Form 1099-MISC to F and files the corrected Form 1099-MISC with the IRS after June 26, 2024, but by July 26, 2024, which date is 30 days from June 26, 2024.
(ii) Analysis. As in the example in paragraph (k)(8) of this section, the election by F and the presence of de minimis errors on the Forms 1099-MISC make the penalties under sections 6721 and 6722 applicable to Q. Additionally, because Q did not furnish a corrected Form 1099-MISC to F and file a corrected Form 1099-MISC with the IRS within 30 days of the date of F's election under § 301.6722-1(d)(3)(i), paragraph (h) of this section does not apply. However, Q may be able to demonstrate reasonable cause under the provisions of paragraph (a) of this section. As part of this demonstration, for example, Q may be able to demonstrate that Q acted in a responsible manner under paragraph (d)(1) of this section by rectifying the failure (that is, the de minimis errors) within 30 days of discovery.
(l) [Reserved]
(m) Procedure for seeking a waiver. In seeking an administrative determination that the failure was due to reasonable cause and not willful neglect, the filer must submit a written statement to the address provided with the notice proposing penalty assessment (for example, Notice 972CG) or the notice of penalty assessment (for example, CP15 or CP215), or as otherwise directed by the IRS in forms, instructions or publications. The statement must—
(1) State the specific provision under which the waiver is being requested, that is, paragraph (b) or under paragraphs (c)(2) through (6) or paragraph (h) of this section;
(2) Set forth all the facts alleged as the basis for reasonable cause;
(3) Contain the signature of the person required to file the return; and
(4) Contain a declaration that it is made under penalties of perjury. See § 1.6061-1 of the Income Tax Regulations for the rules on the signing of returns.
(n) Manner of payment. The penalty due under sections 6721 through 6723 shall be paid upon notice and demand by IRS, and in the same manner as a tax liability is paid.
(o) Applicability dates —(1) In general. Except as provided in paragraphs (o)(2) and (3) of this section, this section applies with respect to information returns required to be filed and payee statements required to be furnished on or after January 1, 2024. See 26 CFR 301.6724-1, as revised April 1, 2023, for rules applicable prior to January 1, 2024, except as provided in paragraphs (o)(2) and (3) of this section.
(2) Paragraph (g). Paragraph (g) of this section applies with respect to information returns as defined in section 6724(d)(1) required to be filed, payee statements as defined in section 6724(d)(2) required to be furnished, and specified information as described in section 6724(d)(3) required to be reported on or after January 1, 2024. See 26 CFR 301.6724-1(g), as revised April 1, 2023, for rules applicable prior to January 1, 2024.
(3) Paragraph (h). Paragraph (h) of this section applies with respect to information returns required to be filed and payee statements required to be furnished after January 4, 2017.
§ 301.6751(b)-1   Supervisory and higher level official approval for penalties.
(a) Approval requirement —(1) In general. Except as provided in paragraph (a)(2) of this section, section 6751(b) of the Internal Revenue Code (Code) generally bars the assessment of a penalty unless the initial determination of the assessment of the penalty is personally approved (in writing) by the immediate supervisor of the individual making the initial determination or such higher level official as the Secretary of the Treasury or her delegate may designate. Paragraph (a)(2) of this section lists penalties not subject to section 6751(b)(1) and this paragraph (a)(1). Paragraph (a)(3) of this section provides definitions of terms used in section 6751(b) and this section. Paragraph (a)(4) of this section designates the higher level officials described in this paragraph (a)(1). Paragraphs (b) through (d) of this section apply section 6751(b)(1) and this paragraph (a)(1) to penalties not subject to pre-assessment review in the United States Tax Court (Tax Court), penalties that are subject to pre-assessment review in the Tax Court, and penalties raised in the Tax Court after a petition is filed, respectively. Paragraph (e) of this section provides examples illustrating the application of section 6751(b) and this section. Paragraph (f) of this section provides dates of applicability of this section.
(2) Exceptions. Under section 6751(b)(2), section 6751(b)(1) and this section do not apply to:
(i) Any penalty under section 6651, 6654, 6655, 6673, 6662(b)(9), or 6662(b)(10) of the Code; or
(ii) Any other penalty automatically calculated through electronic means.
(3) Definitions. For purposes of section 6751(b) and this section, the following definitions apply—
(i) Penalty. The term penalty means any penalty, addition to tax, or additional amount under the Code.
(ii) Individual who first proposed the penalty. Except as otherwise provided in this paragraph (a)(3)(ii), the individual who first proposed the penalty is the individual who section 6751(b)(1) and paragraph (a)(1) of this section reference as the individual making the initial determination of a penalty assessment. For purposes of this section, a proposal of a penalty can be made only to either a taxpayer (or the taxpayer's representative) or to the individual's supervisor or designated higher level official. A proposal of a penalty, as defined in paragraph (a)(3)(i) of this section, to a taxpayer does not include mere requests for information relating to a possible penalty or inquiries of whether a taxpayer wants to participate in a general settlement initiative for which the taxpayer may be eligible, but does include offering the taxpayer an opportunity to agree to a particular penalty in a particular amount other than a penalty under a settlement initiative offered to a class of taxpayers. An individual who first proposed the penalty is not the individual whom section 6751(b)(1) and paragraph (a)(1) of this section reference as the individual making the initial determination of a penalty assessment if the assessment of the penalty is attributable to an independent proposal made by a different individual.
(iii) Immediate supervisor. The term immediate supervisor means any individual with responsibility to review another individual's proposal of penalties, as defined in paragraph (a)(3)(i) of this section, without the proposal being subject to an intermediary's approval.
(iv) Higher level official. The term higher level official means any person designated under paragraph (a)(4) of this section as a higher level official authorized to approve a penalty for purposes of section 6751(b)(1).
(v) Personally approved (in writing). The term personally approved (in writing) means any writing, including in electronic form, made by the writer to signify the writer's assent. No signature or particular words are required so long as the circumstances of the writing reflect that it was intended as approval.
(vi) Automatically calculated through electronic means. A penalty, as defined in paragraph (a)(3)(i) of this section, is automatically calculated through electronic means if an IRS computer program automatically generates a notice to the taxpayer that proposes the penalty. If a taxpayer responds in writing or otherwise to the automatically-generated notice and challenges the proposed penalty, or the amount of tax to which the proposed penalty is attributable, and an IRS employee considers the response prior to assessment (or the issuance of a notice of deficiency that includes the penalty), then the penalty is no longer considered “automatically calculated through electronic means.”
(4) Higher level official. Any person who has been directed by the Internal Revenue Manual or other assigned job duties to approve another individual's proposal of penalties before they are included in a pre-assessment notice prerequisite to Tax Court jurisdiction, an answer, amended answer, or amendment to the answer to a Tax Court petition, or are assessed without need for such inclusion, is designated as a higher level official authorized to approve the penalty for purposes of section 6751(b)(1).
(b) Penalties not subject to pre-assessment review in the Tax Court. The requirements of section 6751(b)(1) and paragraph (a)(1) of this section are satisfied for a penalty that is not subject to pre-assessment review in the Tax Court if the immediate supervisor of the individual who first proposed the penalty personally approves the penalty in writing before the penalty is assessed. Alternatively, a person designated as a higher level official as described in paragraph (a)(4) of this section may provide the approval otherwise required by the immediate supervisor.
(c) Penalties subject to pre-assessment review in the Tax Court. The requirements of section 6751(b)(1) and paragraph (a)(1) of this section are satisfied for a penalty that is included in a pre-assessment notice that provides a basis for Tax Court jurisdiction upon timely petition if the immediate supervisor of the individual who first proposed the penalty personally approves the penalty in writing on or before the date the notice is mailed. Alternatively, a person designated as a higher level official as described in paragraph (a)(4) of this section may provide the approval otherwise required by the immediate supervisor. Examples of a pre-assessment notice described in this paragraph (c) include a statutory notice of deficiency under section 6212 of the Code, a notice of final partnership administrative adjustment under former section 6223 of the Code, and a notice of final partnership adjustment under section 6231 of the Code.
(d) Penalties raised in the Tax Court after a petition. The requirements of section 6751(b)(1) and paragraph (a)(1) of this section are satisfied for a penalty that the Commissioner raises in the Tax Court after a petition ( see section 6214(a) of the Code) if the immediate supervisor of the individual who first proposed the penalty personally approves the penalty in writing no later than the date on which the Commissioner requests that the court determine the penalty. Alternatively, a person designated as a higher level official as described in paragraph (a)(4) of this section may provide the approval otherwise required by the immediate supervisor.
(e) Examples. The following examples illustrate the rules of this section.
(1) Example 1. In the course of an audit regarding a penalty not subject to pre-assessment review in the Tax Court, Revenue Agent A concludes that Taxpayer T should be subject to the penalty under section 6707A of the Code for failure to disclose a reportable transaction. Revenue Agent A sends T a letter giving T the option to agree to the penalty; submit additional information to A about why the penalty should not apply; or request within 30 days that the matter be sent to the Independent Office of Appeals (Appeals) for consideration. After T requests that Appeals consider the case, A prepares the file for transmission, and B (who is A's immediate supervisor, as defined in paragraph (a)(3)(iii) of this section) signs a cover memorandum informing Appeals of the proposed penalty and asks Appeals to consider it. The Appeals Officer upholds the penalty, and it is assessed. The requirements of section 6751(b)(1) are satisfied because B's signature on the cover memorandum is B's personal written assent to the penalty proposed by A and was given before the penalty was assessed.
(2) Example 2. In the course of an audit, Revenue Agent A concludes that Taxpayer T should be subject to an accuracy-related penalty for substantial understatement of income tax under section 6662(b)(2). Revenue Agent A sends T a Letter 915, Examination Report Transmittal, along with an examination report that includes the penalty. The Letter 915 gives T the option to agree to the examination report; provide additional information to be considered; discuss the report with A or B (who is A's immediate supervisor, as defined in paragraph (a)(3)(iii) of this section); or request a conference with an Appeals Officer. T agrees to assessment of the penalty and signs the examination report to consent to the immediate assessment and collection of the amounts shown on the report. B provides written supervisory approval of the penalty after T signs the examination report, but before the penalty is assessed. Paragraph (b) of this section applies because T's agreement to assessment of the penalty excepts it from pre-assessment review in the Tax Court. Because B provided written supervisory approval before assessment of the penalty, the requirements of section 6751(b)(1) are satisfied.
(3) Example 3. In the course of an audit of Taxpayer T by a team of revenue agents, Revenue Agent A concludes that T should be subject to an accuracy-related penalty for negligence under section 6662(b)(1) and (c). Supervisor B is the issue manager and is assigned the duty to review the Notice of Proposed Adjustment for any penalty A would propose. Revenue Agent A reports to B, but B is not responsible for the overall management of the audit of T. C is the case manager of the team auditing T and is responsible for the overall management of the audit of T. C may assign tasks to A and other team members, and has responsibility for approving any examination report presented to T.
(i) Alternative Outcome 1: Only B approves the penalty in writing before the mailing to T of a notice of deficiency that includes the penalty. Under paragraph (a)(3)(iii) of this section, B qualifies as the immediate supervisor of A with respect to A's penalty proposal, and the requirements of section 6751(b)(1) are met.
(ii) Alternative Outcome 2: Only C approves the penalty in writing before the mailing to T of a notice of deficiency that includes the penalty. Because C has responsibility to approve A's proposal of the penalty as part of approving the examination report, C qualifies as a higher level official designated under paragraph (a)(4) of this section to approve the penalty proposed by A, and the requirements of section 6751(b)(1) are met.
(4) Example 4. In the course of an audit, Revenue Agent A concludes that Taxpayer T should be subject to a penalty for negligence under section 6662(c). Revenue Agent A recommends the penalty to her immediate supervisor B, who thinks more factual development is needed to support the penalty but must close the audit immediately due to the limitations period on assessment expiring soon. The IRS issues a statutory notice of deficiency without the penalty and T files a petition in the Tax Court. In reviewing the case file and conducting discovery, IRS Chief Counsel Attorney C concludes that the facts support imposing a negligence penalty under section 6662(c). Attorney C proposes to her immediate supervisor, D, that the penalty should apply and should be raised in an Answer pursuant to section 6214(a). D agrees and signs the Answer that includes the penalty before it is filed. The section 6662(c) penalty at issue is subject to pre-assessment review in the Tax Court and was raised in the Tax Court after a petition was filed under paragraph (d) of this section. Therefore, written supervisory approval under paragraph (d) of this section was required prior to filing the written pleading that includes the penalty. Attorney C is the individual who first proposed the penalty for purposes of section 6751(b)(1) and paragraphs (d) and (a)(3)(ii) of this section, and she secured timely written supervisory approval from D, the immediate supervisor, as defined in paragraph (a)(3)(iii) of this section. As a result, the requirements of section 6751(b)(1) are met. Revenue Agent A did not make the initial determination of the penalty assessment because any assessment would not be attributable to A's proposal but would be based on the independent proposal of Attorney C raised pursuant to section 6214(a).
(5) Example 5. In the course of an audit, Revenue Agent A concludes that Taxpayer T should be subject to a penalty for negligence under section 6662(c). Revenue Agent A includes the penalty in a draft report that she sends for review to her immediate supervisor B. B reviews A's recommendation and notices that A did not consider whether a penalty for a substantial understatement of income tax under section 6662(d) should apply in the alternative. B sends an email to A telling her to “add a section 6662(d) penalty if the math checks out.” Revenue Agent A reviews the facts, determines that the imposition of the section 6662(d) penalty is warranted, and adds the penalty to a report she issues to the taxpayer. Revenue Agent A is the individual who first proposed both of the penalties for purposes of section 6751(b)(1) and paragraphs (d) and (a)(3)(ii) of this section because she is the individual who first proposed the penalty to the taxpayer. Supervisor B did not make the initial determination of the section 6662(d) penalty because, even though she first thought of and suggested it, she did not propose it to the taxpayer or her supervisor (or designated higher level official).
(6) Example 6. The IRS's Automated Underreporter (AUR) computer program detects a discrepancy between the information received from a third party and the information contained on Taxpayer T's return. AUR automatically generates a CP2000, Notice of Underreported Income, that includes an adjustment based on the unreported income and a proposed penalty under section 6662(d) that is mailed to T. The CP2000 gives T 30 days to respond to contest the proposed adjustments and the penalty. T submits a response to the CP2000, asking only for more time to respond. More time is granted but no further response is received from T, and a statutory notice of deficiency that includes the adjustments and the penalty is automatically generated and issued to T. The section 6662(d) penalty at issue is automatically calculated through electronic means under paragraphs (a)(2)(ii) and (a)(3)(vi) of this section. The penalty was proposed by the AUR computer program, which generated a notice to T that proposed the penalty. Although T submitted a response to the CP2000, the response did not challenge the proposed penalty, or the amount of tax to which the proposed penalty is attributable. Therefore, the penalty was automatically calculated through electronic means and written supervisory approval was not required.
(f) Applicability date. The rules of this section apply to penalties assessed on or after December 23, 2024.
§ 301.6801-1   Authority for establishment, alteration, and distribution.
(a) Establishment and alteration. The Commissioner may establish, and from time to time alter, renew, replace, or change the form, style, character, material, and device of any stamp, mark, or label under any provision of the law relating to internal revenue.
(b) Preparation and distribution of forms, stamps and dies. The Commissioner shall prepare and distribute all the instructions, directions, forms, blanks, and stamps; and shall provide proper and sufficient adhesive stamps and other stamps or dies for expressing and denoting the several stamp taxes.
§ 301.6802-1   Supply and distribution.
(a) Postmaster General. The Commissioner shall furnish to the Postmaster General, without prepayment, a suitable quantity of adhesive stamps (other than the stamps on playing cards), coupons, tickets, or such other devices as may be prescribed pursuant to section 6302(b) (authorizing a discretionary method for collecting certain specified taxes) or chapter 69 of the Code, to be distributed to, and kept on sale by, the various postmasters in the United States in all post offices of the first and second classes, and such post offices of the third and fourth classes as are located in county seats or Postmaster General as necessary.
(b) Designated depositary of the United States. The district director for the district in which any designated depositary of the United States is located shall furnish to such designated depositary, without prepayment, a suitable quantity of adhesive stamps to be kept on sale by the designated depositary.
(c) State agents. Any person who is duly appointed and acting as agent of any State for the sale of stock transfer stamps of such State may make application to the district director for the district in which the State agent is located, to be designated for the purpose of being furnished without prepayment, for sale, stamps to be used in payment of the tax imposed by section 4301. The application shall contain the location and post office address of the State agent, and the maximum amount of stamps he desires to maintain on hand. A copy of the agent's appointment as State agent should be attached to the application.
§ 301.6803-1   Accounting and safeguarding.
In cases coming within the provisions of section 6802 (2) and (3) and paragraphs (b) and (c) of § 301.6802-1, the district director may require a bond in such amount as he deems advisable, conditioned for the faithful return, whenever so required, of all quantities or amounts of adhesive stamps undisposed of and for the payment monthly for all quantities or amounts of adhesive stamps sold or not remaining on hand. Such bond shall be furnished in accordance with the provisions contained in section 7101 and § 301.7101-1.
§ 301.6804-1   Attachment and cancellation.
For provisions relating to the attachment and cancellation of specific stamps used with respect to a particular tax, see the regulations relating to such tax.
§ 301.6805-1   Redemption of stamps.
(a) Authorization. (1) Upon receipt of satisfactory evidence of the facts by the district director or director of the service center, he may make allowance for or redeem stamps issued under the authority of any internal revenue law if—
(i) The stamps have been spoiled, destroyed, or rendered useless or unfit for the purpose intended, or
(ii) The owner of the stamps has no use therefor.
(2) If a stamp has been in use for any period of time, it may not be redeemed under section 6805. Similarly, no allowance shall be made for stamps which have been lost or stolen.
(b) Method and conditions of allowance. Such allowance or redemption may be made, either by giving other stamps in lieu of the stamps so allowed for or redeemed, or by refunding the amount or value to the owner thereof, deducting therefrom, in case of repayment, the percentage, if any, allowed to the purchaser thereof. Claims for the redemption of or allowance for stamps shall be made on Form 843 and filed with the district director or director of the service center within three years from the date of the purchase of the stamps from the Government. The stamps for which redemption or allowance is claimed shall be submitted with the claim. If the stamps are destroyed or damaged to the extent that they cannot be presented for redemption or allowance, proof satisfactory to the district director or director of the service center that they have been destroyed or so damaged must accompany the claim before allowance or redemption shall be made. In any case where the actual date of purchase of the stamps from the Government cannot be established, it must be definitely shown in the claim whether they were so purchased within three years prior to the date of filing of the claim.
(c) Time for filing claims. No claim for the redemption of, or allowance for, stamps shall be allowed under this section unless presented within 3 years after the purchase of such stamps from the Government.
(d) Finality of decisions. The findings of fact in and the decision of the district director or director of the service center upon the merits of any claim presented under or authorized by this section, shall in the absence of fraud or mistake in mathematical calculation, be final and not subject to revision by any accounting officer.
§ 301.6806-1   Posting occupational tax stamps.
For provisions relating to the posting of specific stamps used with respect to a particular tax, other than a special tax under subchapter B of chapter 35, subchapter B of chapter 36, or subtitle E, see the regulations relating to such tax. For penalties for failure to post occupational tax stamps, see section 7273.
§ 301.6851-1   Termination of taxable year.
For regulations under section 6851, see §§ 1.6851-1 to 1.6851-3, inclusive, of this chapter (Income Tax Regulations).
§ 301.6852-1   Termination assessments of tax in the case of flagrant political expenditures of section 501(c)(3) organizations.
(a) Authority for making. Any assessment under section 6852 as a result of a flagrant violation by a section 501(c)(3) organization of the prohibition against making political expenditures must be authorized by the District Director.
(b) Determination of income tax. An organization shall be subject to an assessment of income tax under section 6852 only if the flagrant violation of the prohibition against making political expenditures results in revocation of the organization's tax exemption under section 501(a) because it is not described in section 501(c)(3). An organization subject to such an assessment is not liable for income taxes for any period prior to the effective date of the revocation of the organization's tax exemption.
(c) Payment. Where a District Director has made a determination of income tax under paragraph (b) of this section or of section 4955 excise tax, notwithstanding any other provision of law, any tax will become immediately due and payable. The taxpayer is required to pay the amount of the assessment within 10 days after the District Director sends the notice and demand for immediate payment regardless of the filing of an administrative appeal or of a court petition. Regardless of filing an administrative appeal or of petitioning a court, enforced collection action may proceed after the 10-day payment period unless the taxpayer posts the bond described in section 6863. For purposes of collection procedures such as section 6331 (regarding levy), assessments under the authority of paragraph (a) of this section do not constitute situations in which the collection of such tax is in jeopardy and, therefore, do not suspend normal collection procedures.
(d) Effective date. This section is effective December 5, 1995.
§ 301.6861-1   Jeopardy assessments of income, estate, gift, and certain excise taxes.
(a) Authority for making. If a district director or director of a service center believes that the assessment or collection of a deficiency in income, estate, gift, or chapter 41, 42, 43, or 44 tax will be jeopardized by delay, then the director is required to assess such deficiency immediately, together with the interest, additional amounts, and additions to the tax provided by law. A district director will make an assessment under this section if collection is determined to be in jeopardy because at least one of the conditions described in § 1.6851-1(a)(1) (i), (ii), or (iii) (relating to termination assessments) exists. A jeopardy assessment may be made before or after the mailing of the notice of deficiency provided by section 6212. However, a jeopardy assessment for a taxable year under section 6861 cannot be made after a decision of the Tax Court with respect to such taxable year has become final (see section 7481) or after the taxpayer has filed a petition for review of the decision of the Tax Court with respect to such taxable year. In the case of a deficiency determined by a decision of the Tax Court which has become final or with respect to which the taxpayer has filed a petition for review and has not filed a bond as provided in section 7485, assessment may be made in accordance with the provisions of section 6215, without regard to section 6861.
(b) Amount of jeopardy assessment. If a notice of a deficiency is mailed to the taxpayer before it is discovered that delay would jeopardize the assessment or collection of the tax, a jeopardy assessment may be made in an amount greater or less than that included in the deficiency notice. If a deficiency is assessed on account of jeopardy after the decision of the Tax Court is rendered, the jeopardy assessment may be made only with respect to the deficiency determined by the Tax Court.
(c) Jurisdiction of Tax Court. If the jeopardy assessment is made before the notice in respect of the tax to which the jeopardy assessment relates has been mailed pursuant to section 6212(a), the district director shall, within 60 days after the making of the assessment, send the taxpayer a notice of deficiency pursuant to such subsection. The taxpayer may file a petition with the Tax Court for a redetermination of the amount of the deficiency within the time prescribed in section 6213(a). If the petition of the taxpayer is filed with the Tax Court, either before or after the making of the jeopardy assessment, the Commissioner, through his counsel, is required to notify the Tax Court of such assessment or of any abatement thereof, and the Tax Court has jurisdiction to redetermine the amount of the deficiency, together with all other amounts assessed at the same time in connection therewith.
(d) Payment and collection of jeopardy assessment. After a jeopardy assessment has been made, the district director is required to send notice and demand to the taxpayer for the amount of the jeopardy assessment. Regardless of whether the taxpayer has filed a petition with the Tax Court, he is required to make payment of the amount of such assessment (to the extent that it has not been abated) within 10 days after the sending of notice and demand by the district director, unless before the expiration of such 10-day period he files with the district director a bond as provided in section 6863. Section 6331 provides that, if the district director makes a finding that the collection of the tax is in jeopardy, he may make demand for immediate payment of the amount of the jeopardy assessment and, in such case, the taxpayer shall immediately pay such amount or shall immediately file the bond provided in section 6863. If a petition is not filed with the Tax Court within the period prescribed in section 6213(a), the district director will be so advised, and, if collection of the deficiency has been stayed by the timely filing of a bond as provided in section 6863, he should then give notice and make demand for payment of the amount assessed plus interest. After the Tax Court has rendered its decision and such decision has become final, the district director will be notified of the action taken. He will then send notice and demand for payment of the unpaid portion of the amount determined by the Tax Court, the collection of which has been stayed by the bond. If the amount of the jeopardy assessment is less than the amount determined by the Tax Court, the difference will be assessed and collected as part of the tax upon the issuance of a notice and demand therefor. If the amount of the jeopardy assessment is in excess of the amount determined by the Tax Court, the unpaid portion of such excess will be abated. If any part of the excess amount has been paid, it will be credited or refunded to the taxpayer as provided in section 6402, without the filing of claim therefor.
(e) Abatement of excessive assessment. The district director or the director of the regional service center may, at any time before the decision of the Tax Court is rendered, abate a jeopardy assessment in whole or in part if the district director believes that such assessment is excessive in amount.
(f) Abatement if jeopardy does not exist. (1) The district director or the director of the regional service center may abate a jeopardy assessment in whole or in part, if it is shown to the satisfaction of the district director that jeopardy does not exist. An abatement may not be made under this paragraph after a decision of the Tax Court in respect of the deficiency has been rendered or, if no petition is filed with such court, after the expiration of the period for filing such petition.
(2) After abatement of a jeopardy assessment in whole or in part, a deficiency may be assessed and collected in the manner authorized by law as if the jeopardy assessment or part thereof so abated had not existed. If a notice of deficiency has been sent to the taxpayer before the abatement of the jeopardy assessment in whole or in part, whether such notice was sent before or after the making of the assessment, such abatement will not affect the validity of the notice or of any proceedings for redetermination based thereon. The period of limitation on the making of assessments and the beginning of levy or a proceeding in court for collection in respect of any deficiency shall be determined as if the jeopardy assessment so abated had not been made, except that the running of such period shall in any event be suspended for the period from the date of such jeopardy assessment until the expiration of the tenth day after the date on which such jeopardy assessment is abated in whole or in part. The provisions of this subparagraph may be illustrated by the following example:
(3) See section 7429 with respect to requesting the district director to review the making of the jeopardy assessment.
(g) Special rules for chapters 42 and 43 taxes. For purposes of paragraph (a) of this section, the amount of a deficiency with respect to any tax imposed by section 4941(a), 4942(a), 4943(a), 4944(a), 4945(a), 4951(a), 4952(a), 4955(a), 4971(a) or 4975(a) shall include the amount of additional tax imposed by section 4941(b), 4942(b), 4943(b), 4944(b), 4945(b), 4951(b), 4952(b), 4955(b), 4971(b) or 4975(b) for failure to correct the act (or failure to act) which gave rise to liability for the initial tax.
§ 301.6862-1   Jeopardy assessment of taxes other than income, estate, gift, and certain excise taxes.
(a) If the district director believes that the collection of any tax (other than income, estate, gift, chapter 41, 42, 43, or 44 tax) will be jeopardized by delay, the director shall, whether or not the time otherwise prescribed by law for filing the return or paying such tax has expired, immediately assess such tax, together with all interest, additional amounts and additions to the tax provided by law. A district director will make an assessment under this section if collection is determined to be in jeopardy because at least one of the conditions described in § 1.6851-1(a)(1)(i), (ii), or (iii) (relating to termination assessments) exists. For example, assume that a taxpayer incurs on January 18, 1977, liability for tax imposed by section 4061, that the last day on which return and payment of such tax is required to be made is May 2, 1977, and that on January 18, 1977, the district director determines that collection of such tax would be jeopardized by delay. In such case, the district director shall immediately assess the tax.
(b) The tax, interest, additional amounts, and additions to the tax will, upon assessment, become immediately due and payable, and the district director shall, without delay, issue a notice and demand for payment thereof in full. Upon failure or refusal to pay the amount demanded, collection thereof by levy shall be lawful without regard to the 10-day period provided in section 6331 (a). However, the collection of the whole or any part of the amount of the jeopardy assessment may be stayed by timely filing with the district director a bond as provided in section 6863.
(c) See section 7429 with respect to requesting the district director to review the making of the jeopardy assessment.
§ 301.6863-1   Stay of collection of jeopardy assessments; bond to stay collection.
(a) General rule. (1) The collection of an assessment under section 6851, 6861, or 6862 (referred to as a “jeopardy assessment” for purposes of this section), or under section 6852 (referred to as a political assessment for purposes of this section) of any tax may be stayed by filing with the district director a bond on the form to be furnished by the district director upon request.
(2) The bond may be filed—
(i) At any time before the time collection by levy is authorized under section 6331(a), or
(ii) After collection by levy is authorized and before levy is made on any property or rights to property, or
(iii) In the discretion of the district director, after any such levy has been made and before the expiration of the period of limitations on collection.
(3) The bond must be in an amount equal to the portion (including interest thereon to the date of payment as calculated by the district director) of the jeopardy assessment or political assessment collection of which is sought to be stayed. See section 7101 and § 301.7101-1, relating to the form of bond and the sureties thereon. The bond shall be conditioned upon the payment of the amount (together with interest thereon), the collection of which is stayed, at the time at which, but for the making of the jeopardy assessment, such amount would be due.
(4) Upon the filing of a bond in accordance with this section, the collection of so much of the assessment as is covered by the bond will be stayed. The taxpayer may at any time waive the stay of collection of the whole or any part of the amount covered by the bond. If as a result of such waiver any part of the amount covered by the bond is paid, or if any portion of the jeopardy assessment or political assessment is abated by the district director, then the bond shall be at the request of the taxpayer be proportionately reduced.
(b) Additional conditions applicable to income, estate, gift, and chapter 41, 42, 43 and 44 tax assessments. In the case of jeopardy assessment or political assessment of income, estate, gift, chapter 41, 42, 43, or 44 tax, the bond must be conditioned upon the payment of so much of the amount included therein as is not abated by a decision of the Tax Court which has become final, together with the interest on such amount. If the Tax Court determines that the amount assessed is greater than the correct amount of the tax, the bond will be proportionately reduced at the request of the taxpayer after the Tax Court renders its decision. If the bond is given before the taxpayer has filed his petition with the Tax Court, it must contain a further condition that if a petition is not filed before the expiration of the period provided in section 6213(a) for the filing of such petition the amount stayed by the bond will be paid upon notice and demand at any time after the expiration of such period, together with interest thereon at the annual rate referred to in the regulations under section 6621 from the date of the jeopardy (or political assessment) notice and demand to the date of the notice and demand made after the expiration of the period for filing petition with the Tax Court.
§ 301.6863-2   Collection of jeopardy assessment; stay of sale of seized property pending Tax Court decision.
(a) General rule. In the case of an assessment under section 6851, 6852, 6861, or 6862, any property seized for the collection of such assessment shall not (except as provided in paragraph (b) of this section) be sold until the latest of the following occurs:
(1) The period provided in section 7429(a)(2) to request the district director to review the action taken expires.
(2) The period provided in section 7429(b)(1) to file an action in U.S. District Court expires if a request for a redetermination is made to the district director.
(3) The U.S. District Court judgment in such action becomes final, if a civil action is begun in accordance with section 7429(b).
(4) In addition to the occurrences described in paragraphs (a), (1), (2), and (3) of this section, in the case of an assessment of income, estate, gift, chapter 41, 42, 43, or 44 excise taxes, until the latest of the following occurs:
(i) The expiration of the period provided in section 6213(a) within which the taxpayer may file a petition with the Tax Court; or
(ii) The decision of the Tax Court becomes final, if a petition for redetermination is filed with the Tax Court (whether before or after the making of the assessment).
(b) Exceptions. Notwithstanding the provisions of paragraph (a) of this section, any property seized may be sold—
(1) If the taxpayer files with the district director a written consent to the sale, or
(2) If the district director determines that the expenses of conservation and maintenance of the property will greatly reduce the net proceeds from the sale of such property, or
(3) If the property is of a type to which section 6336 (relating to sale of perishable goods) is applicable.
§ 301.6867-1   Presumptions where owner of large amount of cash is not identified.
(a) General rule. For purposes of section 6851 (relating to termination assessments) and section 6861 (relating to jeopardy assessments), if cash in excess of $10,000 is found in the physical possession of an individual who does not claim either ownership of that cash or ownership by some other person whose identity the Commissioner can readily ascertain and who acknowledges ownership of that cash as of the date the cash was found, then, it shall be presumed that—
(1) The cash represents gross income of an unknown single individual; and
(2) That the collection of tax on that income will be jeopardized by delay.
(b) Rules for assessment. The Commissioner may make an assessment pursuant to section 6851 or section 6861, as appropriate, using the rules for assessment specified in this paragraph. In the case of any assessment resulting from the application of paragraph (a) of this section—
(1) The entire amount of cash is treated as taxable income for the taxable year in which the cash is found;
(2) The income is treated as taxable at the highest rate of tax specified in section 1 of the Internal Revenue Code; and
(3) Except as provided in paragraph (c), the possessor of the cash is treated (solely with respect to that cash) as the taxpayer for purposes of chapters 63 and 64 and section 7429(a)(1) of the Internal Revenue Code.
(c) Effect of later substitution of true owner —(1) In general. If an assessment resulting from the application of paragraph (a) of this section is later abated and replaced by an assessment against the true owner of the cash, the later assessment is treated for purposes of all laws relating to lien, levy, and collection as relating back to the date of the original assessment. Notwithstanding the preceding sentence, any notice and review provided for by section 7429 and the notice of deficiency issued to the true owner relative to the later assessment are to be made within the prescribed time limits, using the actual date of the later assessment against the true owner.
(2) Example. The provisions of paragraph (c)(1) of this section may be illustrated by the following example:
(d) Rights of possessor of cash —(1) Action permitted. Section 6867 provides that the possessor of cash is treated as the taxpayer for purposes of chapter 63 (relating to assessment) and chapter 64 (relating to collection) of the Internal Revenue Code. Accordingly, the possessor of cash may file a petition with the United States Tax Court, within the applicable time limits, challenging the notice of deficiency issued to the possessor solely in that person's capacity as possessor of cash.
(2) Actions not permitted. Section 6867 provides that the possessor of cash is treated as the taxpayer solely for purposes of section 7429(a)(1), and is entitled to the written statement of information provided for by that section. The possessor of cash is not treated as the taxpayer for purposes of sections 7429(a)(2) and 7429(b), relating to administrative and judicial review of termination and jeopardy assessments, and may not maintain an action under section 7429 for such review. The possessor of cash is not treated as the taxpayer for purposes of section 7422, relating to civil actions for refund, or chapter 65 of the Internal Revenue Code, relating to abatements, credits, and refunds, and may not institute a suit for refund in district court after the deficiency has been collected.
(e) Rights of true owner of cash —(1) Actions permitted. The true owner of cash may request administrative review under section 7429(a)(2) and may maintain a civil action under section 7429(b) for judicial review of an assessment under section 6851 or section 6861 made against the possessor solely in that person's capacity as possessor of cash. Such an action, however, must be preceded by a request for review under section 7429(a)(2) made by the true owner within 30 days after the day on which the possessor is furnished the written statement provided for in section 7429(a)(1). In addition, after the deficiency asserted against the possessor of cash has been levied upon, the true owner of cash may bring an action in federal district court to recover the cash, as provided in section 7426, relating to civil actions by persons other than taxpayers. See, however, section 6532(c), relating to the 9-month statute of limitations for suits under section 7426. In addition, the true owner of cash, with the permission of the court, may appear before the United States Tax Court in any proceeding that may be filed by the possessor of the cash challenging the notice of deficiency issued to the possessor solely in that person's capacity as possessor of the cash.
(2) Actions not permitted. The true owner of cash may not file a petition with the United States Tax Court challenging the notice of deficiency issued to the possessor solely in that person's capacity as possessor of cash. Notwithstanding the preceding sentence, the true owner of cash may file a petition with the United States Tax Court challenging any notice of deficiency issued to the true owner following the abatement of the assessment made against the possessor of cash.
(f) Definitions. For the purposes of this section and section 6867—
(1) Cash. The term cash includes any cash equivalents.
(2) Cash equivalent —(i) In general. The term cash equivalent includes foreign currency, any bearer obligation, and any medium of exchange that is of a type that has been frequently used in illegal activities, as listed in paragraph (f)(2)(ii) of this section.
(ii) Specific cash equivalents. For purposes of paragraph (f)(2)(i), the following are also cash equivalents—
(A) Coins;
(B) Precious metals;
(C) Jewelry;
(D) Precious stones;
(E) Postage stamps;
(F) Traveler's checks in any form;
(G) Negotiable instruments (including personal checks, business checks, official bank checks, cashier's checks, notes, and money orders) that are either in bearer form, endorsed without restriction, made out to a fictitious payee, or otherwise in such form that title thereto passes upon delivery;
(H) Incomplete instruments (including personal checks, business checks, official bank checks, cashier's checks, notes, and money orders) signed but with the payee's name omitted; and
(I) Securities or stock in bearer form or otherwise in such form that title thereto passes upon delivery.
(iii) Value of cash equivalents. A cash equivalent is taken into account at its fair market value except in the case of a bearer obligation, in which case it is taken into account at its face value.
(3) Possessor of cash. An individual is considered to be the possessor of cash if the cash is found on that individual's person or in that individual's possession or is found in any object, container, vehicle, or area under that individual's custody or control.
(4) True owner of the cash. The true owner of cash is the individual who beneficially owns the cash on the date such cash is found in the physical possession of the individual described in paragraph (f)(3) of this section. An agent, bailee, or other custodian of the cash is not the true owner of cash. A true owner of cash does not include an individual who, subsequent to the date on which the cash is found in the physical possession of the individual described in paragraph (f)(3) of this section, obtains ownership of the cash by purchase, subrogation, descent, or other means.
(g) Effective date. This section is effective with respect to cash found in the physical possession of an individual on or after August 3, 1995.
§ 301.6871(a)-1   Immediate assessment of claims for income, estate, and gift taxes in bankruptcy and receivership proceedings.
(a) Upon (1) the adjudication of bankruptcy of any taxpayer in any liquidating proceeding, (2) the filing with a court of competent jurisdiction or (where approval is required by the Bankruptcy Act, 11 U.S.C. Chapters 1-14) the approval of a petition of, or the approval of a petition against, any taxpayer in any other proceeding under the Bankruptcy Act, or (3) the appointment of any receiver for any taxpayer in a receivership proceeding before any court of the United States or of any State or Territory or of the District of Columbia, the district director shall immediately assess any deficiency of income, estate, or gift tax (together with all interest, additional amounts, or additions to the tax provided by law), determined by him, if such deficiency has not heretofore been assessed in accordance with law. Such assessment shall be made immediately, whether or not a notice of deficiency has been issued, and without regard to the restrictions upon assessment under section 6213.
(b) As used in this section and §§ 301.6871(a)-2 to 301.6873-1, inclusive, the term “proceeding under the Bankruptcy Act” includes a proceeding under chapters I to VII, inclusive, of the Bankruptcy Act, or under section 75 or 77 (11 U.S.C. 203, 205), or chapters X to XIII, inclusive, of such Act, or any other proceeding under the Act.
§ 301.6871(a)-2   Collection of assessed taxes in bankruptcy and receivership proceedings.
(a) During a proceeding under the Bankruptcy Act (11 U.S.C. chapters 1-14) or a receivership proceeding in either a Federal or State court, generally the assets of the taxpayer are under the control of the court in which such proceeding is pending, and the collection of taxes cannot be made by levying upon such assets. However, any assets which under applicable provisions of law are not under the control of the court may be subject to levy. See paragraph (b) of this section and § 301.6871(b)-1 with respect to claims for such taxes. See section 6873 with respect to collection of unpaid claims.
(b) District directors should, promptly after ascertaining the existence of any outstanding liability against a taxpayer in any proceeding under the Bankruptcy Act or in any receivership proceeding, and in any event within the time limited by the appropriate provisions of the Bankruptcy Act, or by the appropriate orders of the court in which such proceeding is pending, file proof of claim covering such liability in the court in which such proceeding is pending. Such proof of claim should be filed whether the unpaid taxes involved have been assessed or not, except in cases where the instructions of the Commissioner direct otherwise; for example, where the payment of the taxes is secured by a sufficient bond. At the same time proof of claim is filed with the bankruptcy or receivership court, the district director will send notice and demand for payment to the taxpayer, together with a copy of such proof of claim.
(c) Under sections 3466 and 3467 of the Revised Statutes (31 U.S.C. 191, 192) and section 64 of the Bankruptcy Act (11 U.S.C. 104), taxes are entitled to the priority over other claims therein specified, and the trustee, receiver, debtor in possession, or other person designated as in control of the assets of the debtor by the court in which the proceeding under the Bankruptcy Act or receivership proceeding is pending, may be held personally liable for failure on his part to protect the priority of the Government respecting taxes of which he has notice. Sections 75(l), 77(e), 199, 337(2), 455, and 659(6) of the Bankruptcy Act (11 U.S.C. 203(l), 205(e), 599, 737(2), 855, and 1059(6)) also contain provisions with respect to the rights of the United States relative to priority of payment. For the filing of returns by a trustee in bankruptcy or by a receiver, see section 6012(b)(3) and 28 U.S.C. 960. Bankruptcy courts have jurisdiction under the Bankruptcy Act to determine all disputes regarding the amount and validity of taxes claimed in a proceeding under the Bankruptcy Act. A proceeding under the Bankruptcy Act or a receivership proceeding does not discharge any portion of a claim of the United States for taxes except in the case of a proceeding under section 77 or chapter X of the Bankruptcy Act. However, the claim may be settled or compromised as in other cases in court.
(d) For the requirement that a receiver, trustee in bankruptcy, or other like fiduciary give notice as to his qualification as such, see section 6036 and the regulations thereunder.
§ 301.6871(b)-1   Claims for income, estate, and gift taxes in proceedings under the Bankruptcy Act and receivership proceedings; claim filed despite pendency of Tax Court proceedings.
(a) If it is determined that a deficiency is due in respect of income, estate, or gift tax and the taxpayer has filed a petition with the Tax Court before (1) the adjudication of bankruptcy in any liquidating proceeding, (2) the filing with a court of competent jurisdiction or (where approval is required by the Bankruptcy Act, 11 U.S.C. chapters 1-14) the approval of a petition of, or the approval of a petition against, any taxpayer in any other proceeding under the Bankruptcy Act, or (3) the appointment of a receiver, the trustee, receiver, debtor in possession, or other like fiduciary, may, upon his own motion, be made a party to the Tax Court proceeding and thereafter may prosecute the appeal before the Tax Court as to that particular determination. No petition shall be filed with the Tax Court for a redetermination of the deficiency after the adjudication of bankruptcy, the filing or (where approval is required by the Bankruptcy Act) the approval of a petition of, or the approval of a petition against, any taxpayer in any other bankruptcy proceeding, or the appointment of the receiver.
(b) Even though the determination of a deficiency is pending before the Tax Court for redetermination, proof of claim for the amount of such deficiency may be filed with the court in which the proceeding under the Bankruptcy Act or receivership proceeding is pending without awaiting final decision of the Tax Court. In case of a final decision of the Tax Court before the payment or the disallowance of the claim in the proceeding under the Bankruptcy Act or receivership proceeding, a copy of the Tax Court's decision may be filed by the district director with the court in which such proceeding is pending.
(c) While a district director is required by section 6871(a) and paragraph (a) of § 301.6871(a)-1 to make immediate assessment of any deficiency, such assessment is not made as a jeopardy assessment within the meaning of section 6861, and consequently the provisions of that section do not apply to any assessment made under section 6871. Therefore, the notice of deficiency provided in section 6861(b) will not be mailed. Although such notice will not be issued, a letter will be sent to the taxpayer or to the trustee, receiver, debtor in possession, or other like fiduciary, notifying him in detail how the deficiency was computed, that he may furnish evidence showing wherein the deficiency is incorrect, and that upon request he will be granted a conference by the district director with respect to such deficiency. However, such letter will not provide for such a conference where a petition was filed with the Tax Court before (1) the adjudication of bankruptcy in a liquidating proceeding, (2) the filing with a court of competent jurisdiction or (where approval is required by the Bankruptcy Act), the approval of a petition of, or the approval of a petition against, any taxpayer in any other proceeding under the Bankruptcy Act, or (3) the appointment of a receiver.
§ 301.6872-1   Suspension of running of period of limitations on assessment.
If any fiduciary in any proceeding under the Bankruptcy Act (11 U.S.C. chapters 1-14), including a trustee, receiver, or debtor in possession, or a receiver in any other court proceeding is required, pursuant to section 6036, to give notice in writing to the district director of his qualification as such, then the running of the period of limitations on assessment shall be suspended from the date the proceeding is instituted to the date such notice is received by the district director, and for an additional 30 days thereafter. However, the suspension under this section of the running of the period of limitation on assessment shall in no case exceed 2 years.
§ 301.6873-1   Unpaid claims in bankruptcy or receivership proceedings.
(a) If any portion of the claim allowed by the court in a receivership proceeding, or in any proceeding under the Bankruptcy Act (11 U.S.C. chs. 1-14) remains unpaid after the termination of such proceeding, the district director will send notice and demand for payment thereof to the taxpayer. Such unpaid portion with interest as provided in section 6601 may be collected from the taxpayer by levy or proceeding in court within the period of limitation for collection after assessment. For the general rule as to such period of limitation, see section 6502, and for suspension of the running of the period provided in section 6502, see, for example, section 6503. For suspensions under other provisions of law, see, for example, section 11f of the Bankruptcy Act (11 U.S.C. 29(f)). Extension of time for the payment of such unpaid amount may be granted in the same manner and subject to the same provisions and limitations as provided in section 6161(c).
(b) Section 6873 is applicable only where a claim for taxes is allowed in a receivership proceeding or in a proceeding under the Bankruptcy Act. Claims for taxes, interest, additional amounts, or additions to the tax may be collectible in equity or under other provisions of law although no claim was allowed in the proceeding because, for example, such items were not included in a proof of claim filed in the proceeding or no proof of claim was filed. Except in the case of a proceeding under section 77 or chapter X of the Bankruptcy Act, a tax or a liability in respect thereof is not discharged by a proceeding under such act, whether or not a claim is filed in such proceeding, and provisions suspending the running of the period of limitation on the collection of taxes are applicable, whether or not a claim is filed in such proceeding.