The Internal Revenue Service (IRS) issued a notice of proposed rulemaking relating to penalties for failure to file correct information returns or furnish correct payee statements. These payee statements include Form 1099-R and Form 5498, which are forms that financial institutions are obligated to report information about IRAs and employer-sponsored retirement plans. The proposed regulations include safe harbor rules that, for penalty purposes, treat payee statements and information returns that contain errors of de minimis incorrect dollar amounts (e.g., errors of $100 or less, or, in the case of tax withholding, errors that are $25 or less) as correct.

Furthermore, the proposed regulations include the following proposed changes: (1) indicate the time and manner in which a payee may elect not to have the safe harbor rules apply; (2) update the penalty amounts and references to information reporting obligations; and (3) provide rules relating to the reporting of the basis of securities by brokers as the reporting relates to the de minimis error safe harbor rules.

The IRS is seeking comments on the proposed rule, and the comment period ends on December 17, 2018.

Click here to see the new rule.