The Internal Revenue Service (IRS) on October 25, 2016 released Rev. Proc. 2016-55 announcing inflation-adjusted amounts for penalties imposed under Sections 6721 and 6722 of the Internal Revenue Code for failure to timely file correct information returns (e.g., Forms 1099, 1042-S) with the IRS and to furnish correct and timely statements to payees.
Congress and the IRS have made many changes and additions to the information reporting program over the past few years. The increased penalties provided in the Trade Preferences Extension Act of 2015, Rev. Proc. 2015-53, and Rev. Proc. 2016-55 are yet another indication of the government’s focus on information reporting.
The IRS relies more on efficient methods to monitor taxpayer compliance, such as information reporting (e.g., Forms 1099, 1042-S, etc.) as its budget has been significantly decreased over the past few years. IRS studies have shown that taxpayer compliance increases proportionately to well over 90% where income is subject to information reporting.