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May 16, 2020

Penalties on information returns

Information returns are crucial for taxpayers. If they fail to report and pay the correct amount of tax on time, there are various potential and severe penalties.

The most critical information return forms required to be filed by the Internal Revenue Code include Form W-2, Form 8937, Forms 1094-C, and Forms 1095-C.

Under Secs. 6721, 6722, and 6723, penalties do not apply if the failure to comply is due to reasonable cause and not willful neglect.

If the taxpayer does not respond to or file a tax return, the IRS will send a series of notices or “deficiency procedures.”

*These penalties can be challenged in Tax Court before being paid. Divisible penalties or penalties not from deficiency procedures can be challenged if the taxpayer pays the full penalty amount and files a formal claim for refund in the federal district court.

Some taxpayers may choose to dispute such penalties through the IRS. They will receive a judicial review in Tax Court after a Collection Due Process hearing.

by MAEMURA STAFF

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