[Federal Register Volume 88, Number 242 (Tuesday, December 19, 2023)]
[Rules and Regulations]
[Pages 87696-87714]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-27283]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 301

[TD 9984]
RIN 1545-BN59


De Minimis Error Safe Harbor Exceptions to Penalties for Failure 
To File Correct Information Returns or Furnish Correct Payee Statements

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

-----------------------------------------------------------------------

SUMMARY: This document contains final regulations implementing 
statutory safe harbor rules that protect persons required to file 
information returns or to furnish payee statements from penalties under 
the Internal Revenue Code (Code) for failure to file correct 
information returns or furnish correct payee statements. The statutory 
safe harbor rules treat information returns and payee statements with 
erroneous dollar amounts as correct returns or statements for certain 
penalty purposes if the errors are de minimis in dollar amount. The 
final regulations also prescribe the time and manner in which a payee 
may elect not to have the statutory safe harbor rules apply. In 
addition, these final regulations update dollar amounts, definitions, 
and references in existing regulations relating to information return 
and payee statement penalties to reflect various statutory amendments 
to the Code that are not accounted for in the existing regulations. 
Finally, the final regulations provide rules relating to the reporting 
of basis of securities by brokers as this reporting relates to the de 
minimis error safe harbor rules. The final regulations affect persons 
required to either file information returns or to furnish payee 
statements (filers) and the recipients of payee statements (payees).

DATES: 
    Effective date: These regulations are effective on December 19, 
2023.
    Applicability dates: For dates of applicability, see Sec. Sec.  
1.6045-1(d)(6)(ix) and (q), 301.6721-1(j), 301.6722-1(g), and 301.6724-
1(o).

FOR FURTHER INFORMATION CONTACT: Alexander Wu at (202) 317-6845 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains final regulations to amend the Income Tax 
Regulations (26 CFR part 1) under section 6045(g) of the Code and the 
Procedure and Administration Regulations (26 CFR part 301) under 
sections 6721, 6722, and 6724 of the Code. In particular, the final 
regulations implement two statutory safe harbors that except certain de 
minimis errors in reporting correct dollar amounts on information 
returns and payee statements from the penalty for failure to file 
correct information returns imposed by section 6721 and the penalty for 
failure to furnish correct payee statements imposed by section 6722 (de 
minimis error safe harbor exceptions). The de minimis error safe harbor 
exceptions are found in sections 6721(c)(3) and 6722(c)(3), which were 
added to the Code by section 202 of the Protecting Americans from Tax 
Hikes Act of 2015 (PATH Act), enacted as division Q of the Consolidated 
Appropriations Act, 2016, Public Law 114-113, 129 Stat. 2242, 3076-78 
(2015). Under sections 6721(c)(3) and 6722(c)(3), an error in a 
reported dollar amount generally is ``de minimis'' if the difference 
between any single amount reported in error and the correct amount 
required to be reported does not exceed $100. If such a difference is 
with respect to reporting an amount of tax withheld, the difference may 
not be more than $25.
    On October 17, 2018, the Department of the Treasury (Treasury 
Department) and the IRS published a notice of proposed rulemaking (REG-
118826-16) in the Federal Register (83 FR 52726) containing proposed 
regulations to implement the de minimis error safe harbor exceptions, 
as well as to update dollar amounts, definitions, and references 
reflecting various statutory amendments to the Code that are not 
accounted for in provisions of existing regulations relating to 
information return and payee statement penalties (proposed 
regulations). The proposed regulations were issued following a notice 
announcing and describing regulations intended to be issued under 
sections 6721, 6722, and 6724. See Notice 2017-09, 2017-4 I.R.B. 542 
(January 23, 2017).
    The Treasury Department and the IRS received six written comments 
in response to the notice of proposed rulemaking. All of the written 
comments responding to the notice of proposed rulemaking are available 
at https://www.regulations.gov or upon request. Some comments merely 
expressed appreciation for the proposed regulations. No public hearing 
was requested or held. After consideration of the written comments, the 
proposed regulations are adopted as modified by this Treasury Decision.

Summary of Comments and Explanation of Revisions

    This Summary of Comments and Explanation of Revisions section 
addresses the substantive comments in response to the notice of 
proposed rulemaking that disagreed with or requested clarification of 
the proposed regulations. See the Explanation of Provisions section of 
REG-118826-16 for a detailed explanation of the proposed regulations.

I. Effect of the Regulations on Tax Compliance

    One comment stated that the proposed regulations ``will increase 
the amount of regulation we have when it comes to `failure to file 
cases' in the US.'' The comment did not describe how the proposed 
regulations would increase the amount of regulation applicable to 
``failure to file cases.'' The Treasury Department and the IRS note 
that the regulations implement statutory provisions providing certain 
protections to filers and payees, and the amount of

[[Page 87697]]

regulation is only one of several factors that must be considered in 
implementing statutory provisions. The Treasury Department and the IRS 
further note that the safe harbor is generally intended to provide 
filers with relief from penalties that would otherwise accrue due to 
unintentional de minimis errors in reporting correct dollar amounts on 
information returns and payee statements. Accordingly, the final 
regulations do not adopt this comment.

II. De minimis Error Safe Harbor Election

A. Applying the Election to Individual Securities and Individual 
Accounts
    One comment requested a more efficient way to furnish correct payee 
statements generally. The commentator did not suggest a specific method 
for furnishing correct payee statements; nevertheless, the method for 
furnishing correct payee statements is beyond the scope of these 
regulations, which is limited to implementing the two de minimis error 
safe harbor exceptions and otherwise updating existing regulations for 
statutory changes. The final regulations therefore do not adopt this 
comment.
    One comment disagreed with providing filers the option to choose 
whether to correct de minimis errors. The comment also stated that the 
de minimis threshold was too high and disagreed with the de minimis 
error safe harbor exceptions applying on a ``per security'' rather than 
a ``per account'' basis. The Treasury Department and the IRS note that 
sections 6721(c)(3) and 6722(c)(3) mandate the option for filers to 
choose whether to correct de minimis errors, subject to an election by 
a payee to override this option. Sections 6721(c)(3)(A) and 
6722(c)(3)(A) also mandate the de minimis thresholds with specificity. 
The final regulations reflect these statutory requirements. The 
Treasury Department and the IRS further note that the statutory de 
minimis error safe harbor exceptions apply on a ``per statement'' 
basis. Section 6722(c)(3)(A) expressly provides that the de minimis 
error safe harbor exceptions apply ``with respect to any payee 
statement.'' Further, section 6722(c)(3)(B) provides that the de 
minimis error safe harbor exceptions ``shall not apply to any payee 
statement if the person to whom such statement is required to be 
furnished makes an election . . . with respect to such statement.'' To 
the extent that a statement relates only to a single security, the 
statute applies, in effect, on a ``per security'' basis. The statute 
allows for this outcome, and the final regulations accord with the 
plain reading of the statute.
    One comment reiterated comments submitted in 2018 prior to the 
publication of the proposed regulations. This comment suggested that a 
payee's election to override the de minimis error safe harbor 
exceptions should apply on an account-by-account basis, rather than on 
a statement-by-statement basis. The comment questioned whether it was 
Congress's intent to require taxpayers to make separate elections for 
each payee statement. As stated in the preamble of the notice of 
proposed rulemaking, the comment's suggested rule would significantly 
limit a payee's options for making elections and is inconsistent with 
the statutory framework of sections 6721 through 6724, which generally 
impose a penalty on a per statement (or return) basis. However, a payee 
need not decide on elections individually for each payee statement 
associated with a single account or filer but may elect as to all payee 
statements or any combination of payee statements, with the election 
lasting indefinitely by default. As recognized in the notice of 
proposed rulemaking, nothing in the Code prohibits filers from 
providing corrected statements regardless of the de minimis error safe 
harbor exceptions or payee election. Thus, in drafting the PATH Act, 
Congress was aware that filers could provide corrections on an account-
wide basis once a payee made an election with respect to a single type 
of payee statement associated with that account.
B. Potential for Inconsistencies in Basis Reporting
    A comment stated that the proposed regulations could cause 
inconsistencies in basis reporting that are contrary to congressional 
intent. The comment was specifically concerned with a situation in 
which a payee would elect to override the de minimis error safe harbor 
exceptions with respect to one form but not another corresponding form. 
For example, a payee could elect to override the safe harbor exception 
with respect to a Form 1099-DIV, Dividends and Distributions, but not 
elect to override the safe harbor exception with respect to a 
corresponding Form 1099-B, Proceeds From Broker and Barter Exchange 
Transactions, potentially resulting in inconsistently reported basis.
    The Treasury Department and the IRS have determined that the text 
of proposed Sec.  1.6045-1(d)(6)(vii) should be amended to more clearly 
address this situation. Under the rule as modified by these final 
regulations, if a Form 1099-DIV is corrected because a payee elects to 
override the de minimis error safe harbor exceptions as applied to the 
Form 1099-DIV, then the adjusted basis reported on the corresponding 
Form 1099-B must be based on and consistent with the corresponding 
corrected dollar amount shown on the corrected Form 1099-DIV. After 
taking into account the corrected dollar amount shown on the corrected 
Form 1099-DIV, Form 1099-B should be corrected if there is an error on 
the Form 1099-B and that error is not de minimis. In any event, to 
avoid inconsistent reporting, the filer can always choose to correct 
the Form 1099-B, or the payee can elect to override the de minimis safe 
harbor exceptions with respect to the Form 1099-B.
    The Treasury Department and the IRS note that the fact that 
Congress enacted the de minimis error safe harbor exceptions indicates 
Congress was aware that there might be minor inconsistencies in basis 
reporting and that the de minimis error safe harbor exceptions apply 
only for certain penalty purposes. The de minimis error safe harbor 
exceptions have no effect on the operation of those provisions of the 
Code that apply to determine the basis of property, such as section 
1012 of the Code.
C. Effective Date of Payee Election
    Another comment requested the payee election be effective only on a 
prospective basis, citing administrative burden. The Treasury 
Department and the IRS note that the election is prospective in that a 
filer is required to furnish corrected statements after the date the 
election is made by the payee, and an election, once made, is in effect 
until revoked. Any administrative burden as described by the comment is 
limited because 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. As 
discussed in the preamble to the proposed regulations, administrative 
burden is but one factor that must be considered. A competing 
consideration is the flexibility that Congress provided for payees to 
elect out of the de minimis error safe harbor exceptions. The Treasury 
Department and the IRS have determined that the proposed rules reflect 
a reasonable balancing of these considerations. Thus, the final 
regulations do not adopt this suggestion.

[[Page 87698]]

III. Clarification of Items in the Proposed Regulations and Other 
Guidance

    Two comments requested clarification that the term ``tax withheld'' 
in proposed Sec.  301.6722-1(d)(2) includes social security, Medicare, 
and Additional Medicare taxes. The definition in the proposed 
regulations referenced some of the more common types of taxes withheld 
but was not intended to be an exhaustive list of all Federal taxes 
considered to be ``tax withheld.'' The use of the term ``includes'' in 
proposed Sec.  301.6722-1(d)(2) is based on the definition of 
``includes'' in section 7701(c) of the Code, which provides that the 
term ``includes'' when used in a definition ``shall not be deemed to 
exclude other things otherwise within the meaning of the term 
defined.'' Nevertheless, to resolve any ambiguity as to whether the 
term ``tax withheld'' includes social security, Medicare, and 
Additional Medicare taxes, the final regulations generally adopt the 
text of proposed Sec.  301.6722-1(d)(2) but modify the definition of 
``tax withheld'' by adding a reference to section 3102 of the Code in 
Sec.  301.6722-1(d)(2).
    One comment requested clarification on whether different taxes 
withheld and reported separately on an information return or payee 
statement are considered separately in determining whether the de 
minimis threshold is reached. To illustrate, the comment asked if 
errors on an employee's Form W-2, Wage and Tax Statement, in the 
amounts of $20 in Federal income tax withheld, $20 in Medicare tax 
withheld, and $7.41 in Additional Medicare tax withheld would be 
considered separately for de minimis threshold purposes. The definition 
of ``de minimis error'' in proposed Sec.  301.6722-1(d)(2) refers to 
``any single amount in error.'' Accordingly, if a payee statement does 
not require taxes withheld to be combined into a single amount for 
reporting purposes, then each single amount of tax required to be 
reported separately would be considered separately in determining 
whether an error is de minimis. To respond to the concern raised by 
this comment, the final regulations add new examples in Sec.  301.6722-
1(d)(5)(iv) and (v) to illustrate this result and update the Table of 
Contents in Sec.  301.6721-0 relating to Sec.  301.6722-1(d)(5).
    The comment also suggested that additional disclosures be provided 
in the General Instructions for Forms W-2 and W-3, Transmittal of Wage 
and Tax Statements. The comment correctly noted that the de minimis 
error safe harbor exceptions under sections 6721(c)(3) and 6722(c)(3) 
apply only for information return and payee statement penalty purposes, 
and do not apply for other purposes, including the requirement to pay 
and report employment taxes on Form 941, Employer's QUARTERLY Federal 
Tax Return. The comment suggested including a note of caution 
concerning the effect of incorrect information returns on other aspects 
of tax compliance. The Treasury Department and the IRS will consider 
revising the General Instructions for Forms W-2 and W-3. To respond to 
the concern raised by this comment, the final regulations add 
Sec. Sec.  301.6721-1(e)(5) and 301.6722-1(d)(7), which state that the 
de minimis error safe harbor exceptions under sections 6721(c)(3) and 
6722(c)(3) apply only for information return and payee statement 
penalty purposes, respectively, and not for other purposes, including 
requirements to pay and report taxes pursuant to provisions of the Code 
other than sections 6721 and 6722. The final regulations also add 
Sec. Sec.  301.6721-1(e)(4) and 301.6722-1(d)(6) to make clear that, 
regardless of whether the de minimis error safe harbor exceptions 
provide an exception for not filing or furnishing the corrected 
statement, a filer may voluntarily file (1) a corrected information 
return if the corresponding payee statement is furnished concurrently, 
or (2) a corrected payee statement may be furnished voluntarily if the 
corresponding information return is filed concurrently.
    Finally, proposed Sec.  301.6724-1(g) proposed to update the 
questions and answers in Sec.  301.6724-1(g) regarding the due 
diligence safe harbor as in effect on October 12, 2018, the date the 
proposed regulations were published in the Federal Register. The 
proposed changes updated the existing regulations to remove outdated 
references and to make numerous conforming amendments to reflect the 
addition and redesignation of paragraphs. No comments were received in 
response to the proposed changes to Sec.  301.6724-1(g). Nevertheless, 
the final regulations make non-substantive formatting changes to 
convert the outmoded questions and answers into more clearly stated 
rules.

Applicability Dates

    The proposed regulations provided that the regulations generally 
would apply with respect to information returns required to be filed 
and payee statements required to be furnished on or after January 1 of 
the calendar year immediately following the date of publication of a 
Treasury decision adopting these rules as final regulations in the 
Federal Register.
    However, the proposed regulations provided that proposed Sec.  
301.6724-1(h) would apply with respect to information returns required 
to be filed and payee statements required to be furnished on or after 
January 1, 2017. The final regulations generally adopt the 
applicability dates proposed in the proposed regulations. However, 
because Notice 2017-09 was released to the public on January 4, 2017, 
the final regulations postpone the applicability date of Sec.  
301.6724-1(h) by providing that Sec.  301.6724-1(h) applies with 
respect to information returns required to be filed and payee 
statements required to be furnished after January 4, 2017.

Effect on Other Documents

    These final regulations under sections 6045(g), 6721, 6722, and 
6724 supersede Notice 2017-09 with respect to information returns 
required to be filed and payee statements required to be furnished on 
or after January 1, 2024.

Special Analyses

I. Regulatory Planning and Review

    Pursuant to the Memorandum of Agreement, Review of Treasury 
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory 
actions issued by the IRS are not subject to the requirements of 
section 6 of Executive Order 12866, as amended. Therefore, a regulatory 
impact assessment is not required.

II. Regulatory Flexibility Act

    Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it 
is hereby certified that the regulations will not have a significant 
economic impact on a substantial number of small entities. Accordingly, 
a regulatory flexibility analysis is not required. These regulations 
implement the de minimis error safe harbor exceptions in sections 
6721(c)(3) and 6722(c)(3) to the sections 6721 and 6722 penalties. 
Pursuant to section 6722(c)(3)(B), these regulations also provide for 
the time and manner for elections by payees that the de minimis error 
safe harbor exceptions not apply, including optional notifications by 
filers to provide for an alternative reasonable manner for the 
election. Finally, these regulations provide rules for revocations by 
payees of elections and record retention rules.
    Although these regulations may affect a substantial number of small 
entities, the economic impact on these entities is not significant. The 
de minimis error

[[Page 87699]]

safe harbor exceptions are expected to reduce the burden on all filers, 
including small entities, to file corrected information returns and 
furnish corrected payee statements because of de minimis errors. In 
those cases where payees opt to make a voluntary election for the de 
minimis error safe harbor exceptions to not apply to a payee statement, 
the expense of making the voluntary election will be borne by the 
payees, some of which may be small entities. However, any expense to 
make this voluntary election is expected to be minimal and therefore 
not have a significant economic impact.
    Filers that are small entities receiving elections may incur costs 
in processing the elections, including initial costs in implementing 
systems or modifying existing systems to process elections, and 
subsequently in time incurred administering these systems. However, 
because section 6722(c)(3)(B) provides for a payee election, such costs 
flow from the statute regardless of these regulations. The Code and 
regulations have long required the filing of information returns and 
the furnishing of payee statements by filers. Accordingly, systems for 
filing information returns and furnishing payee statements are already 
in existence. Any costs incurred pursuant to these regulations in 
modifying those systems are not expected to be significant. These 
regulations provide clarity regarding the election process, which is 
expected to result in a more streamlined process for correcting payee 
statements.
    Similarly, in those cases where payees opt to make a voluntary 
revocation of a prior voluntary election, the expense of making the 
voluntary revocation will be borne by the payees, some of which may be 
small entities. Any expense to make a voluntary revocation of a prior 
voluntary election is expected to be minimal and therefore not have a 
significant economic impact. Filers that are small entities receiving 
revocations will benefit from the resulting applicability of the de 
minimis error safe harbor exceptions, resulting in reduced burden to 
file corrected information returns and furnish corrected payee 
statements because of de minimis errors. Filers that are small entities 
receiving revocations may incur costs in processing the revocations 
similar to those incurred in processing elections; however, it is 
expected that systems implementing payee elections can be modified with 
minimal additional cost to account for revocations in addition to 
elections. Filers that are small entities choosing to provide the 
optional notification to payees regarding an alternative reasonable 
manner for making the election may incur costs in providing the 
notification. However, it is expected that filers will only provide 
optional notifications if they have determined that any cost in 
providing the notification is offset by a resulting economic benefit to 
the filer, such as a more cost-efficient election system. The record 
retention rules may also increase expenses for filers that are small 
entities; however, any added expenses are expected to be minimal given 
existing record retention systems.
    Pursuant to section 7805(f), the notice of proposed rulemaking 
preceding these final regulations was submitted to the Chief Counsel 
for Advocacy of the Small Business Administration for comment on its 
impact on small businesses. No comments were received from the Chief 
Counsel for Advocacy of the Small Business Administration.

III. Paperwork Reduction Act

    The collection of information contained in these final regulations 
has been reviewed and approved by the Office of Management and Budget 
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)) under control number 1545-2301.
    The collection of information in these final regulations is in 
Sec.  301.6722-1(d)(3)(iii) regarding the payee election, (d)(3)(v)(B) 
regarding the filer notification, (d)(3)(vii) regarding the payee 
revocation, and (d)(4) regarding record retention. The information in 
final regulations Sec.  301.6722-1(d)(3)(iii) and (vii) will be used by 
payees to make and revoke elections and by filers to determine whether 
they are required to furnish corrected payee statements to payees and 
file corrected information returns with the IRS to avoid application of 
penalties under sections 6721 and 6722 of the Code. The information 
under final regulation Sec.  301.6722-1(d)(3)(v)(B) will be used to 
give filers and payees flexibility in establishing reasonable 
alternative manners for elections. And the information in final 
regulation Sec.  301.6722-1(d)(4) will be used by the IRS to determine 
whether filers are subject to penalties under sections 6721 and 6722. 
The collection of information in final regulations Sec.  301.6722-
1(d)(3)(iii) regarding the payee election, (d)(3)(v)(B) regarding the 
filer notification, and (d)(3)(vii) regarding the payee revocation is 
voluntary to obtain a benefit. The collection of information in final 
regulation Sec.  301.6722-1(d)(4) regarding record retention is 
mandatory. The likely respondents are individuals, state or local 
governments, farms, business or other for-profit institutions, 
nonprofit institutions, and small businesses or organizations.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

IV. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that agencies assess anticipated costs and benefits and take 
certain other actions before issuing a final rule that includes any 
Federal mandate that may result in expenditures in any one year by a 
state, local, or tribal government, in the aggregate, or by the private 
sector, of $100 million (updated annually for inflation). This rule 
does not include any Federal mandate that may result in expenditures by 
state, local, or tribal governments, or by the private sector in excess 
of that threshold.

V. Executive Order 13132: Federalism

    E.O. 13132 (Federalism) prohibits an agency from publishing any 
rule that has federalism implications if the rule either imposes 
substantial, direct compliance costs on state and local governments, 
and is not required by statute, or preempts state law, unless the 
agency meets the consultation and funding requirements of section 6 of 
the E.O. This rule does not have federalism implications and does not 
impose substantial direct compliance costs on state and local 
governments or preempt state law within the meaning of the E.O.

VI. Congressional Review Act

    Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), 
the Office of Information and Regulatory Affairs has designated this 
rule as not a major rule as defined by 5 U.S.C. 804(2).

Drafting Information

    The principal author of these regulations is Alexander Wu of the 
Office of the Associate Chief Counsel (Procedure and Administration). 
However, other personnel from the Treasury Department and the IRS 
participated in the development of the regulations.

[[Page 87700]]

Statement of Availability

    The IRS Notices and Revenue Procedures cited in this Treasury 
Decision are published in the Internal Revenue Bulletin (or Cumulative 
Bulletin) and are available from the Superintendent of Documents, U.S. 
Government Publishing Office, Washington, DC 20402, or by visiting the 
IRS website at https://www.irs.gov.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, the Treasury Department and the IRS amend 26 CFR parts 
1 and 301 as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *
* * * * *

0
Par. 2. Section 1.6045-1 is amended by:
0
1. Redesignating paragraph (d)(6)(vii) as paragraph (d)(6)(viii);
0
2. Adding a new paragraph (d)(6)(vii);
0
3. In newly redesignated paragraph (d)(6)(viii), designating Examples 1 
through 4 as paragraphs (d)(6)(viii)(A) through (D), respectively;
0
4. Redesignating newly designated paragraphs (d)(6)(viii)(A)(i) through 
(iii) as paragraphs (d)(6)(viii)(A)(1) through (3), respectively;
0
5. In newly designated paragraph (d)(6)(viii)(B), removing the language 
``Example 1'' and adding ``paragraph (d)(6)(viii)(A)(1) of this section 
(Example 1)'' in its place;
0
6. Redesignating newly designated paragraphs (d)(6)(viii)(C)(i) and 
(ii) as paragraphs (d)(6)(viii)(C)(1) and (2);
0
7. Adding paragraph (d)(6)(ix); and
0
8. Revising paragraphs (k)(4), (l), and (q).
    The additions and revisions read as follows:


Sec.  1.6045-1  Returns of information of brokers and barter exchanges.

* * * * *
    (d) * * *
    (6) * * *
    (vii) Treatment of de minimis errors. For purposes of this section, 
a customer's adjusted basis generally must be determined by treating 
any incorrect dollar amount that is not required to be corrected by 
reason of section 6721(c)(3) or 6722(c)(3) as the correct amount. 
However, if a broker, upon identifying a dollar amount as incorrect, 
voluntarily or is required to file a corrected information return and 
furnish the corresponding corrected payee statement showing the correct 
dollar amount, then regardless of any provision under section 6721 or 
6722, the adjusted basis for purposes of this section must be based on 
and consistent with the correct dollar amount as reported on the 
corrected information return and corrected payee statement.
* * * * *
    (ix) Applicability date. Paragraph (d)(6)(vii) of 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.
* * * * *
    (k) * * *
    (4) Cross-reference to penalty. For provisions for failure to 
furnish timely a correct payee statement, see Sec.  301.6722-1 of this 
chapter (Procedure and Administration Regulations). See Sec.  301.6724-
1 of this chapter for the waiver of a penalty if the failure is due to 
reasonable cause and is not due to willful neglect.
    (l) Use of magnetic media or electronic form. See Sec.  301.6011-2 
of this chapter for rules relating to filing information returns on 
magnetic media or in electronic form and for rules relating to waivers 
granted for undue hardship. A broker or barter exchange that fails to 
file a proper Form 1099 electronically, when required, may be subject 
to a penalty under section 6721 for each such failure. See paragraph 
(j) of this section.
* * * * *
    (q) Applicability dates. Except as otherwise provided in paragraphs 
(d)(6)(ix), (m)(2)(ii), and (n)(12)(ii) of this section, and in this 
paragraph (q), this section applies on or after January 6, 2017. 
Paragraphs (k)(4) and (l) of this section apply with respect to 
information returns required to be filed and payee statements required 
to be furnished on or after January 1, 2024. (For rules that apply 
after June 30, 2014, and before January 6, 2017, see 26 CFR 1.6045-1, 
as revised April 1, 2016.)

PART 301--PROCEDURE AND ADMINISTRATION

0
Par. 3. The authority citation for part 301 continues to read in part 
as follows:

    Authority: 26 U.S.C. 7805.
* * * * *

0
Par. 4. Section 301.6721-0 is amended by:
0
1. Revising the introductory text and the entries for Sec.  301.6721-
1(b)(6) and (d)(4);
0
2. Redesignating the entries for Sec.  301.6721-1(e), (e)(1) and (2), 
(f), (f)(1) through (6), (g), and (g)(1) through (6) as entries for 
Sec.  301.6721-1(f), (f)(1) and (2), (g), (g)(1) through (6), (h), and 
(h)(1) through (6), respectively;
0
3. Adding entries for Sec.  301.6721-1(e), (e)(1) through (5), (i), and 
(j);
0
4. Redesignating the entries for Sec.  301.6722-1(d) and (d)(1) through 
(3) as the entries for Sec.  301.6722-1(e) and (e)(1) through (3);
0
5. Adding entries for Sec.  301.6722-1(d), (d)(1) through (7), (e)(4), 
(f), and (g);
0
6. In the entry for Sec.  301.6724-1(c)(4), removing ``Internal Revenue 
Service'' and adding ``IRS'' in its place;
0
7. Revising the entry for Sec.  301.6724-1(h);
0
8. Removing the entries for Sec.  301.6724-1(h)(1) and (2); and
0
9. Adding an entry for Sec.  301.6724-1(o).
    The additions and revisions read as follows:


Sec.  301.6721-0  Table of Contents.

    In order to facilitate the use of Sec. Sec.  301.6721-1 through 
301.6724-1, this section lists the paragraph headings contained in 
these sections.

Sec.  301.6721-1 Failure to file correct information returns.

* * * * *
    (b) * * *
    (6) Applications to returns not due on January 31, February 28, 
or March 15.
* * * * *
    (d) * * *
    (4) Nonapplication to returns not due on January 31, February 
28, or March 15.
    (e) Safe harbor exception for certain de minimis errors.
    (1) In general.
    (2) Definition of de minimis error.
    (3) Election to override the safe harbor exception.
    (4) Voluntary corrections.
    (5) Limitations on applicability.
* * * * *
    (i) Adjustment for inflation.
    (j) Applicability date.

Sec.  301.6722-1 Failure to furnish correct payee statements.

* * * * *
    (d) Safe harbor exception for certain de minimis errors.
    (1) In general.
    (2) Definition of de minimis error.
    (3) Election to override the safe harbor exception.
    (4) Record retention.
    (5) Examples.

[[Page 87701]]

    (6) Voluntary corrections.
    (7) Limitations on applicability.
    (e) * * *
    (4) Filer.
    (f) Adjustment for inflation.
    (g) Applicability date.
* * * * *

Sec.  301.6724-1 Reasonable cause.

* * * * *
    (h) Reasonable cause safe harbor after election under section 
6722(c)(3)(B).
* * * * *
    (o) Applicability date.


0
Par. 5. Section 301.6721-1 is amended by:
0
1. Revising paragraphs (a)(1) and (b)(1) and (2);
0
2. In paragraph (b)(3), removing ``Internal Revenue Service'' and 
adding ``IRS'' in its place;
0
3. Revising paragraph (b)(5) introductory text and (b)(5)(i) and (ii);
0
4. Adding paragraph (b)(6);
0
5. Revising paragraphs (c)(1), (c)(2)(iii), and (c)(3) introductory 
text;
0
6. In paragraph (c)(3), designating Examples 1 through 3 as paragraphs 
(c)(3)(i) through (iii), respectively;
0
7. In newly designated paragraphs (c)(3)(i) through (iii), removing 
``Internal Revenue Service'' and adding ``IRS'' in its place;
0
8. In newly designated paragraph (c)(3)(ii), removing the language 
``the error'' and adding ``The error'' in its place;
0
9. Revising paragraph (d);
0
10. Redesignating paragraphs (e), (f), (g), and (h) as paragraphs (f), 
(g), (h), and (j), respectively;
0
11. Adding a new paragraph (e);
0
12. Revising newly redesignated paragraphs (f)(1) and (g)(1);
0
13. In newly redesignated paragraph (g)(3)(iii), removing ``Internal 
Revenue Service'' and adding ``IRS'' in its place;
0
14. Revising newly redesignated paragraphs (g)(4) through (6), (h)(1), 
and (h)(2)(x) and (xi);
0
15. Adding paragraphs (h)(2)(xii);
0
16. Revising newly redesignated paragraphs (h)(3)(xvii), (xviii), 
(xxiv), and (xxv);
0
17. Adding paragraphs (h)(3)(xxvi) and (xxvii);
0
18. Revising newly redesignated paragraphs (h)(4) and (6);
0
19. Adding paragraph (i); and
0
20. Revising newly redesignated paragraph (j).
    The revisions and additions read as follows:


Sec.  301.6721-1   Failure to file correct information returns.

    (a) * * *
    (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 Sec.  301.6724-
1(a)(1) for waiver of the penalty for a failure that is due to 
reasonable cause.
* * * * *
    (b) * * *
    (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.
* * * * *
    (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 Sec.  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 x 400 
= $100,000), $1,500,000 for the 18,000 forms filed after 30 days ($100 
x 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 x 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 x 14,000 = $3,500,000).
* * * * *
    (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) * * *
    (1) In general. An inconsequential error or omission is not 
considered a

[[Page 87702]]

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) * * *
    (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 
Sec.  301.6724-1(a):
* * * * *
    (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 Sec.  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 Sec.  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 x 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 x 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 x 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 x 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 x 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

[[Page 87703]]

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 Sec.  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 Sec.  
301.6722-1(d)(3). See Sec.  301.6722-1(d)(3) for additional rules 
relating to the election under section 6722(c)(3)(B) and Sec.  
301.6722-1(d)(3), including rules relating to the revocation of the 
election and the inapplicability of the election to certain 
information. See Sec.  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 Sec.  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) * * *
    (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.
* * * * *
    (g) * * *
    (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.
* * * * *
    (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.

[[Page 87704]]

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 x 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) * * *
    (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) * * *
    (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 decedents, generally Form 8971, Information 
Regarding Beneficiaries Acquiring Property From a Decedent, and the 
Schedule(s) A required to be filed along with it).
    (3) * * *
    (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);
* * * * *
    (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.
* * * * *
    (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 date. This section applies with respect to 
information returns required to be filed on or after January 1, 2024. 
See 26 CFR 301.6721-

[[Page 87705]]

1, as revised April 1, 2023, for rules applicable prior to January 1, 
2024.

0
Par. 6. Section 301.6722-1 is amended by:
0
1. Revising paragraphs (a)(1), (a)(2)(ii), and (b)(2)(i);
0
2. In paragraphs (b)(2)(ii) and (iii), removing the comma at the end of 
each paragraph and adding a semicolon in its place;
0
3. In paragraphs (b)(2)(iii) and (iv), removing ``Internal Revenue 
Service'' and adding ``IRS'' in its place;
0
4. Revising paragraph (b)(3) introductory text;
0
5. In paragraph (b)(3), designating Examples 1 and 2 as paragraphs 
(b)(3)(i) and (ii); and
0
6. In newly designated paragraph (b)(3)(ii), removing the language 
``Example 1'' and adding ``paragraph (d)(3)(i) of this section (Example 
1)'' in its place;
0
7. Revising paragraph (c)(1);
0
8. Redesignating paragraphs (c)(2)(i) through (iii) as paragraphs 
(c)(2)(ii) through (iv);
0
9. Adding a new paragraph (c)(2)(i);
0
10. Revising newly redesignated paragraphs (c)(2)(ii) and (iii);
0
11. Redesignating paragraphs (d) and (e) as paragraphs (e) and (g);
0
12. Adding a new paragraph (d);
0
13. Revising newly redesignated paragraphs (e)(1), (e)(2) introductory 
text, and (e)(2)(xxxiii) and (xxxiv);
0
14. Adding paragraphs (e)(2)(xxxv) through (xxxviii);
0
15. In newly designated paragraph (e)(3):
0
i. Adding the language ``or 4'' after the language ``chapter 3'';
0
ii. Removing the language ``generally'' and adding the language 
``including but not limited to'' in its place; and
0
iii. Removing the language ``subject'' and adding the language 
``Subject'' in its place;
0
16. Adding paragraphs (e)(4) and (f); and
0
17. Revising newly redesignated paragraph (g).
    The revisions and additions read as follows:


Sec.  301.6722-1   Failure to furnish correct payee statements.

    (a) * * *
    (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 Sec.  
301.6724-1(a)(1) for a waiver of the penalty for a failure that is due 
to reasonable cause.
    (2) * * *
    (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) * * *
    (2) * * *
    (i) A dollar amount, except as provided in paragraph (d) of this 
section;
* * * * *
    (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 Sec.  301.6724-1(a):
* * * * *
    (c) * * *
    (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 
Sec.  301.6721-1(g)(3), which will apply in determining whether a 
failure under this section is due to intentional disregard.
    (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
* * * * *
    (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

[[Page 87706]]

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

[[Page 87707]]

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, 
Sec.  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 Sec.  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 Sec.  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 Sec.  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

[[Page 87708]]

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) * * *
    (1) Payee. See Sec.  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--
* * * * *
    (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, other than a statement described in section 
6724(d)(1)(D), (relating to basis information with respect to property 
acquired from decedents, generally Schedule A of Form 8971, Information 
Regarding Beneficiaries Acquiring Property From a Decedent);
    (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).
* * * * *
    (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 date. 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.

0
Par. 7.Section 301.6724-1 is amended by:
0
1. Revising paragraphs (a)(1) and (a)(2)(ii);
0
2. Designating the undesignated paragraph following paragraph 
(a)(2)(ii) as paragraph (a)(2)(iii) and revising newly designated 
paragraph (a)(2)(iii);
0
3. Revising paragraphs (b) introductory text and (b)(2)(i) and (ii);
0
4. Designating the undesignated paragraph following paragraph 
(b)(2)(ii) as paragraph (b)(3);
0
5. In paragraph (c)(1)(iii), adding ``(IRS)'' after ``Internal Revenue 
Service'';
0
6. Revising paragraph (c)(3)(ii);
0
7. In paragraphs (c)(4) and (c)(6)(ii), removing ``Internal Revenue 
Service'' and adding ``IRS'' in its place;
0
8. Revising paragraphs (e)(1) introductory text and (e)(1)(i) and the 
first sentence of paragraph (e)(1)(vi)(A);
0
9. Removing paragraph (e)(1)(vi)(E);
0
10. Redesignating paragraphs (e)(1)(vi)(F) and (G) as paragraphs 
(e)(1)(vi)(E) and (F) and revising newly redesignated paragraphs 
(e)(1)(vi)(E) and (F);
0
11. In paragraphs (e)(2)(i)(A) and (e)(2)(ii)(C) and (E), removing 
``Internal Revenue Service'' and adding ``IRS'' in its place;
0
12. Revising paragraphs (f)(1) introductory text and (f)(1)(i);
0
13. In paragraph (f)(1)(ii), removing ``Internal Revenue Service'' and 
adding ``IRS'' in its place;
0
14. Revising paragraphs (f)(5)(i) and (ii), (g), (h), (k), (m) 
introductory text, and (m)(1);
0
15. In paragraphs (m)(2) and (3), removing the comma at the end of the 
paragraphs and adding a semicolon in its place;
0
16. In paragraph (n), removing ``Internal Revenue Service'' and adding 
``IRS'' in its place; and
0
17. Adding paragraph (o).
    The revisions and additions read as follows:


Sec.  301.6724-1   Reasonable cause.

    (a) * * *
    (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) * * *

[[Page 87709]]

    (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 Sec.  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--
* * * * *
    (2) * * *
    (i) Whether the filer has incurred any penalty under Sec.  
301.6721-1, Sec.  301.6722-1, or Sec.  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.
* * * * *
    (c) * * *
    (3) * * *
    (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);
* * * * *
    (e) * * *
    (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 Sec.  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).
* * * * *
    (vi) * * *
    (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 Sec.  301.6721-1, is filed 
provides specific requirements relating to the manner or the time 
period in which a TIN must be solicited. * * *
* * * * *
    (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.
* * * * *
    (f) * * *
    (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 Sec.  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.
* * * * *
    (5) * * *
    (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 Sec.  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

[[Page 87710]]

account for such year or if no return as defined in Sec.  301.6721-1(h) 
is required to be filed for the account for such year.
* * * * *
    (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 Sec.  301.6721-1(h);
    (B) Payee statement as defined in Sec.  301.6722-1(e)(2) and (3); 
or
    (C) Document as described in Sec.  301.6723-1(a)(4); or
    (ii) The failure merely to provide a TIN as described in Sec.  
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 Sec.  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,

[[Page 87711]]

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 Sec.  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 Sec. Sec.  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 Sec.  301.6721-1(e)(1) or Sec.  301.6722-1(d)(1) would have applied, 
but for an election under Sec.  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 Sec.  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 Sec. Sec.  
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.
* * * * *
    (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 Sec.  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 Sec.  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 Sec.  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

[[Page 87712]]

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 Sec.  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)
----------------------------------------------------------------------------------------------------------------
                 2023                           2/2024                  10/2024                   2/2025
----------------------------------------------------------------------------------------------------------------
Account opened (solicits TIN)........  2023 return filed......  B-notice with respect    2024 return filed.
                                                                 to 2023 return.
----------------------------------------------------------------------------------------------------------------
4/2025                                 10/2025................  2/2026.................  4/2026
----------------------------------------------------------------------------------------------------------------
6721 penalty notice for 2023 return..  B-notice with respect    2025 return filed......  6721 penalty notice for
                                        to 2024 return.                                   2024.
----------------------------------------------------------------------------------------------------------------

    (ii) Facts. The facts are the same as in paragraph (k)(2)(i) of 
this section (Example 2). Under Sec.  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 Sec.  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 
Sec.  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 Sec.  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)
----------------------------------------------------------------------------------------------------------------
                 2023                           2/2024                  10/2024                   2/2025
----------------------------------------------------------------------------------------------------------------
Account opened (solicits TIN)........  2023 return filed......  B-notice with respect    2024 return filed.
                                                                 to 2023 return.
----------------------------------------------------------------------------------------------------------------
4/2025                                 10/2025................  2/2026.................  4/2026
----------------------------------------------------------------------------------------------------------------
6721 penalty notice for 2023 return..  B-notice with respect    2025 return filed......  6721 penalty notice for
                                        to 2024 return.                                   2024 return.
----------------------------------------------------------------------------------------------------------------

    (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 Sec.  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 Sec.  1.6050H-2(f) of this chapter. C fails to provide the TIN as 
required by Sec.  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 Sec.  
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.

[[Page 87713]]

    (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 Sec.  301.6721-1(a) for the 2025 information return is 
not waived.
    (6) Example 6--(i) Table.

                                         Table 3 to Paragraph (k)(6)(i)
----------------------------------------------------------------------------------------------------------------
               10/2023                          2/2024                  10/2024                   2/2025
----------------------------------------------------------------------------------------------------------------
Account opened. (solicits TIN).......  2023 return filed......  B-notice with respect    2024 return filed.
                                                                 to 2023 return.
----------------------------------------------------------------------------------------------------------------
4/2025                                 10/2025................  2/2026.................  4/2026
----------------------------------------------------------------------------------------------------------------
6721 penalty notice for 2023 return..  B-notice with respect    2025 return filed......  6721 penalty notice for
                                        to 2024 return.                                   2024 return.
----------------------------------------------------------------------------------------------------------------

    (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 Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec. Sec.  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 Sec.  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 Sec.  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

[[Page 87714]]

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.
* * * * *
    (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;
* * * * *
    (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.

Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
    Approved: November 29, 2023.
Lily L. Batchelder,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2023-27283 Filed 12-18-23; 8:45 am]
BILLING CODE 4830-01-P