It is that time of year. IRS Notices 972CG, proposed penalty notices, are out.
The IRS typically starts mailing the notices in late July. The process continues through August.
How do you “qualify” for a 972CG? Try filing 1099s late. Or fail to file at all! Penalties are also assessed for filing 1099s in the wrong format. Do you have more than 250 1099s to file? Then you must file electronically, not on paper.
The other big way to get a penalty assessment is to file 1099s with incorrect or missing taxpayer ID numbers. (We told you to get and check those W-9s!) And you’ll get zinged for “any combination” of the above. See the penalty rates here.
But—good news—you might not have to pay the full amount shown on the 972CG. The form is a proposed penalty, not a final assessment. It is possible to reduce the amount or persuade the IRS to waive the proposed penalty altogether. To avoid part or all of the penalty, though, you must act promptly. You have 45 days to respond to the Notice.
If you look at the list of offenses and see that they’ve got you dead to rights, just return the acknowledgment, payment slip and your payment. For example, if you did file 3,231 Form 1099s on paper instead of electronically, they got you!
But if you disagree with some or all of the proposed penalties and can show reasonable cause rather than willful neglect, you may dispute the proposed penalty. If the IRS accepts your explanation, it might reduce the penalty or waive it altogether.
Return the response page included in the 972-CG notice. Note your disagreement and include a detailed letter of explanation. You must show why you believe the penalty should not be assessed and how you acted responsibly. Keep it courteous and professional.
Mitigating factors may include this being the first time you’ve had to file a particular type of return. On the other hand, if you have filed many times before, show an established history of your compliance without penalty. Then explain what happened this time.
You can get relief if you can show the error was due to events beyond your control. For example, perhaps a computer crash damaged your records, or the person with sole responsibility for filing had an unavoidable absence. Maybe the payee person responsible for providing you with the correct tax ID had an unavoidable absence that prevented you from getting a TIN.
“Undue economic hardship” related to filing in electronic format can be reasonable cause. Or perhaps you used a third-party agent to do your filing and something interfered with them doing it right or on time. Perhaps you acquired another company and did not realize until too late that their files were a mess and they had failed to file 1099s.
Describe your compliance process. If penalties are for missing taxpayer IDs, show the steps you took to obtain the TINs. If the TIN is incorrect, provide evidence that you received it from the payee and supplied it to the IRS in good faith. (Of course, you’ll also get a CP-2100 “B-Notice” on this and have to take actions there to obtain the correct TIN—we’ll cover than another time!)
In the same letter, you also can request a 60-day extension to get into compliance.
Having made your case, you have to include an acknowledgment that the declaration is made under penalties of perjury. Then sign and submit the document. You do not have to include copies of evidence, for example, your TIN solicitation letters or phone log copies.
The IRS, while tenacious about any taxes owed the government, is surprisingly willing to adjust penalties under the right circumstances. It is worth looking at and writing a letter!
The IRS will send either a 1948C letter or a CP15/215. The 1948C letter could request additional information or it will notify you that it has waived the penalty. A CP15/215, on the other hand, will confirm the penalty assessment and demand payment.
IRS compliance begins at vendor onboarding. VendorInfo is here to help, from W-9 and W-8 solicitation and collection (including guidance for vendors to complete the correct form the right way) to TIN matching and much more. Contact us.