These synopses are intended only as aids to the reader in
Agency decision
Ask Donna
What actually matters in this document.
Text
HIGHLIGHTS
OF THIS ISSUE
Bulletin No. 2024–3
January 16, 2024
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Notice 2024-10, page 406.
This notice provides additional interim guidance regarding
the application of the new corporate alternative minimum tax
(CAMT), as added to the Code by the Inflation Reduction Act
of 2022. Specifically, the notice provides additional rules for
determining the adjusted financial statement income (AFSI)
of a U.S. Shareholder when a controlled foreign corporation
(CFC) pays a dividend to the U.S. Shareholder or another
CFC and modifies and clarifies the interim guidance provided
in Notice 2023-64 regarding the applicable financial statement (AFS) of members of a tax consolidated group.
REG-107423 -23, page 411.
The notice of proposed rulemaking (NPRM) would implement
the new section 45X advanced manufacturing production
credit established by the Inflation Reduction Act of 2022
(IRA), Public Law 117-169. Section 45X provides a credit for
the production (within the United States) and sale of eligible
Finding Lists begin on page ii.
components and is designed to incentivize domestic production of certain green energy components including certain
solar energy components, wind energy components, inverters, qualifying battery components, and applicable critical
minerals. The proposed regulations would affect eligible taxpayers who produce and sell eligible components and intend
to claim an advanced manufacturing production credit.
T.D. 9984, page 386.
These final regulations implement the Internal Revenue
Code’s de minimis error safe harbor exceptions for de minimis errors on information returns and payee statements,
which treat erroneous information returns and payee statements as correct for certain penalty purposes if the errors
are de minimis in amount. The final regulations prescribe
the time and manner in which a payee may elect not to have
the de minimis error safe harbor exceptions apply. The final
regulations also update dollar amounts, definitions, and references in provisions relating to information return and payee
statement penalties, to reflect statutory enactments that are
not accounted for in the existing regulations.
The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and
enforce the law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements of
internal practices and procedures that affect the rights and
duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service
on the application of the law to the pivotal facts stated in
the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature are
deleted to prevent unwarranted invasions of privacy and to
comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B,
Legislation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
January 16, 2024
Bulletin No. 2024–3
Part I
26 CFR 1.6045-1; 26 CFR 301.6721-0; 26
CFR 301.6721-1; 26 CFR 301.6722-1; 26
CFR 301.6724-1
T.D. 9984
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1 and 301
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
January 16, 2024
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 §§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) 3176845 (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)
386
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 REG118826-16 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
Bulletin No. 2024–3
note that the regulations implement statutory provisions providing certain protections to filers and payees, and the amount
of 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,
Bulletin No. 2024–3
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 accountby-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
387
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 1099DIV, 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
§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 1099B, 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
January 16, 2024
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.
III. Clarification of items in the proposed
regulations and other guidance
Two comments requested clarification
that the term “tax withheld” in proposed
§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 §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 §301.67221(d)(2) but modify the definition of “tax
withheld” by adding a reference to section 3102 of the Code in §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 consid-
January 16, 2024
ered 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
§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
§301.6722-1(d)(5)(iv) and (v) to illustrate this result and update the Table
of Contents in §301.6721-0 relating to
§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
§§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
388
add §§301.6721-1(e)(4) and 301.67221(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 §301.6724-1(g)
proposed to update the questions and
answers in §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 §301.67241(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 §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 § 301.6724-1(h) by providing that § 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.
Bulletin No. 2024–3
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 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 vol-
Bulletin No. 2024–3
untary 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
389
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 §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
§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
§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 §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 §301.67221(d)(3)(iii) regarding the payee election,
January 16, 2024
(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 §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.
January 16, 2024
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.
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 amends 26 CFR parts 1 and
301 as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
390
*****
Par. 2. Section 1.6045-1 is amended
by:
1. Redesignating paragraph (d)(6)(vii)
as paragraph (d)(6)(viii);
2. Adding a new paragraph (d)(6)(vii);
3. In newly redesignated paragraph (d)
(6)(viii), designating Examples 1
through 4 as paragraphs (d)(6)(viii)
(A) through (D), respectively;
4. Redesignating newly designated
paragraphs (d)(6)(viii)(A)(i) through
(iii) as paragraphs (d)(6)(viii)(A)(1)
through (3), respectively;
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;
6. Redesignating newly designated
paragraphs (d)(6)(viii)(C)(i) and (ii)
as paragraphs (d)(6)(viii)(C)(1) and
(2);
7. Adding paragraph (d)(6)(ix); and
8. Revising paragraphs (k)(4), (l), and
(q).
The additions and revisions read as follows:
§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
Bulletin No. 2024–3
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 §301.6722-1
of this chapter (Procedure and Administration Regulations). See §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 §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
Par. 3. The authority citation for part
301 continues to read in part as follows:
Authority: 26 U.S.C. 7805.
*****
Par. 4. Section 301.6721-0 is amended
by:
1. Revising the introductory text and the
entries for §301.6721-1(b)(6) and (d)
(4);
2. Redesignating the entries for
§301.6721-1(e), (e)(1) and (2), (f),
(f)(1) through (6), (g), and (g)(1)
through (6) as entries for §301.67211(f), (f)(1) and (2), (g), (g)(1) through
(6), (h), and (h)(1) through (6),
respectively;
Bulletin No. 2024–3
3.
Adding entries for §301.6721-1(e),
(e)(1) through (5), (i), and (j);
4. Redesignating the entries for
§301.6722-1(d) and (d)(1) through
(3) as the entries for §301.6722-1(e)
and (e)(1) through (3);
5. Adding entries for §301.6722-1(d),
(d)(1) through (7), (e)(4), (f), and (g);
6. In the entry for §301.6724-1(c)(4),
removing “Internal Revenue Service”
and adding “IRS” in its place;
7. Revising the entry for §301.67241(h);
8. Removing the entries for §301.67241(h)(1) and (2); and
9. Adding an entry for §301.6724-1(o).
The additions and revisions read as follows:
§301.6721-0 Table of Contents.
In order to facilitate the use of
§§301.6721-1 through 301.6724-1, this
section lists the paragraph headings contained in these sections.
§301.6721-1 Failure to file correct
information returns.
*****
(b) * * *
(6) Application 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.
§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.
391
(3) Election to override the safe harbor
exception.
(4) Record retention.
(5) Examples.
(6) Voluntary corrections.
(7) Limitations on applicability.
(e) * * *
(4) Filer.
(f) Adjustment for inflation.
(g) Applicability date.
*****
§301.6724-1 Reasonable cause.
*****
(h) Reasonable cause safe harbor after
election under section 6722(c)(3)(B).
*****
(o) Applicability dates.
Par. 5. Section 301.6721-1 is amended
by:
1. Revising paragraphs (a)(1) and (b)(1)
and (2);
2. In paragraph (b)(3), removing “Internal Revenue Service” and adding
“IRS” in its place;
3. Revising paragraph (b)(5) introductory text and (b)(5)(i) and (ii);
4. Revising paragraph (b)(6);
5. Revising paragraphs (c)(1), (c)(2)
(iii), and (c)(3) introductory text;
6. In paragraph (c)(3), designating
Examples 1 through 3 as paragraphs
(c)(3)(i) through (iii), respectively;
7. In newly designated paragraphs (c)
(3)(i) through (iii), removing “Internal Revenue Service” and adding
“IRS” in its place;
8. In newly designated paragraph (c)
(3)(ii), removing the language “the
error” and adding “The error” in its
place;
9. Revising paragraph (d);
10. Redesignating paragraphs (e), (f), (g),
and (h) as paragraphs (f), (g), (h), and
(j), respectively;
11. Adding a new paragraph (e);
12. Revising newly redesignated paragraphs (f)(1) and (g)(1);
13. In newly redesignated paragraph (g)
(3)(iii), removing “Internal Revenue Service” and adding “IRS” in its
place;
14. Revising newly redesignated paragraphs (g)(4) through (6), (h)(1), and
(h)(2)(x) and (xi);
15. Adding paragraphs (h)(2)(xii);
January 16, 2024
16. Revising newly redesignated paragraphs (h)(3)(xvii), (xviii), (xxiv),
and (xxv);
17. Adding paragraphs (h)(3)(xxvi) and
(xxvii);
18. Revising newly redesignated paragraphs (h)(4) and (6);
19. Adding paragraph (i); and
20. Revising newly redesignated paragraph (j).
The revisions and additions read as follows:
§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 §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
January 16, 2024
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 §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.
392
(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 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 §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
Bulletin No. 2024–3
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 §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 §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
Bulletin No. 2024–3
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 1099INT 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 1099INT. 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.
393
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 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
§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
§301.6722-1(d)(3). See §301.6722-1(d)
(3) for additional rules relating to the
election under section 6722(c)(3)(B) and
§301.6722-1(d)(3), including rules relating to the revocation of the election and
the inapplicability of the election to certain information. See §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)
January 16, 2024
(1) of this section does not apply because
of an election under §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.
*****
January 16, 2024
(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
394
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. 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
Bulletin No. 2024–3
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
Bulletin No. 2024–3
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.
395
*****
(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 301.6721-1, as revised
April 1, 2023, for rules applicable prior to
January 1, 2024.
Par. 6. Section 301.6722-1 is amended
by:
1. Revising paragraphs (a)(1), (a)(2)(ii),
and (b)(2)(i);
2. In paragraphs (b)(2)(ii) and (iii),
removing the comma at the end of
each paragraph and adding a semicolon in its place;
3. In paragraphs (b)(2)(iii) and (iv),
removing “Internal Revenue Service”
and adding “IRS” in its place;
4. Revising paragraph (b)(3) introductory text;
5. In paragraph (b)(3), designating
Examples 1 and 2 as paragraphs (b)
(3)(i) and (ii); and
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;
7. Revising paragraph (c)(1);
8. Redesignating paragraphs (c)(2)(i)
through (iii) as paragraphs (c)(2)(ii)
through (iv);
9. Adding a new paragraph (c)(2)(i);
10. Revising newly redesignated paragraphs (c)(2)(ii) and (iii);
11. Redesignating paragraphs (d) and (e)
as paragraphs (e) and (g);
12. Adding a new paragraph (d);
13. Revising newly redesignated paragraphs (e)(1), (e)(2) introductory text,
and (e)(2)(xxxiii) and (xxxiv);
14. Adding paragraphs (e)(2)(xxxv)
through (xxxviii);
15. In newly designated paragraph (e)(3):
January 16, 2024
i.
Adding the language “or 4” after
the language “chapter 3”;
ii. Removing the language “generally” and adding the language
“including but not limited to” in
its place; and
iii. Removing the language “subject” and adding the language
“Subject” in its place;
16. Adding paragraphs (e)(4) and (f); and
17. Revising newly redesignated paragraph (g).
The revisions and additions read as follows:
§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 §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
January 16, 2024
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
§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 §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
396
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 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
Bulletin No. 2024–3
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
Bulletin No. 2024–3
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)
397
(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 other-
January 16, 2024
wise 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 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,
§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.
January 16, 2024
(viii)
Reasonable
cause.
See
§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 §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
§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
398
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 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.
Bulletin No. 2024–3
(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) * * *
Bulletin No. 2024–3
(1) Payee. See §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.
Par. 7. Section 301.6724-1 is amended
by:
399
1.
Revising paragraphs (a)(1) and (a)(2)
(ii);
2. Designating the undesignated paragraph following paragraph (a)(2)(ii)
as paragraph (a)(2)(iii) and revising
newly designated paragraph (a)(2)
(iii);
3. Revising paragraphs (b) introductory
text and (b)(2)(i) and (ii);
4. Designating the undesignated paragraph following paragraph (b)(2)(ii)
as paragraph (b)(3);
5. In paragraph (c)(1)(iii), adding
“(IRS)” after “Internal Revenue Service”;
6. Revising paragraph (c)(3)(ii);
7. In paragraphs (c)(4) and (c)(6)(ii),
removing “Internal Revenue Service”
and adding “IRS” in its place;
8. Revising paragraphs (e)(1) introductory text and (e)(1)(i) and the first
sentence of paragraph (e)(1)(vi)(A);
9. Removing paragraph (e)(1)(vi)(E);
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);
11. In paragraphs (e)(2)(i)(A) and (e)(2)
(ii)(C) and (E), removing “Internal
Revenue Service” and adding “IRS”
in its place;
12. Revising paragraphs (f)(1) introductory text and (f)(1)(i);
13. In paragraph (f)(1)(ii), removing
“Internal Revenue Service” and adding “IRS” in its place;
14. Revising paragraphs (f)(5)(i) and (ii),
(g), (h), (k), (m) introductory text,
and (m)(1);
15. In paragraphs (m)(2) and (3), removing the comma at the end of the paragraphs and adding a semicolon in its
place;
16. In paragraph (n), removing “Internal
Revenue Service” and adding “IRS”
in its place; and
17. Adding paragraph (o).
The revisions and additions read as follows:
§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
January 16, 2024
this section is waived if the failure is due
to reasonable cause and is not due to willful neglect.
(2) * * *
(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
§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 §301.6721-1, §301.6722-1,
or §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
January 16, 2024
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 §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
400
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 §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 §31.3406(h)-3(a) of this chapter. No
additional solicitation is required after the
Bulletin No. 2024–3
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
§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 account
for such year or if no return as defined in
§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
§301.6721-1(h);
(B) Payee statement as defined in
§301.6722-1(e)(2) and (3); or
(C) Document as described in
§301.6723-1(a)(4); or
(ii) The failure merely to provide a TIN
as described in §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
Bulletin No. 2024–3
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 §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
401
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
January 16, 2024
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, 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)
January 16, 2024
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 pre1984 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 post1983 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 pre2001 rules. A filer may rely on the due diligence rules set forth in 26 CFR 35a.99991, 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.99993, 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 §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 §§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
§301.6721-1(e)(1) or §301.6722-1(d)(1)
would have applied, but for an election
under §301.6722-1(d)(3)(i). To establish
reasonable cause and not willful neglect
402
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 §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 §§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 §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
Bulletin No. 2024–3
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 §301.67211(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 §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 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 §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
Account opened (solicits TIN)
2/2024
2023 return filed
4/2025
10/2025
6721 penalty notice for 2023 return
B-notice with respect to 2024 return
(ii) Facts. The facts are the same as in paragraph (k)(2)(i) of this section (Example 2). Under
§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 §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 estab-
10/2024
2/2025
B-notice with respect to 2023 return
2/2026
4/2026
2025 return filed
lishes 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
2024 return filed
6721 penalty notice for 2024
2023 and, after being notified of the incorrect TIN
in October 2024, the first annual solicitation within
the time and manner prescribed by §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
§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
Account opened (solicits TIN)
2/2024
2023 return filed
4/2025
10/2025
6721 penalty notice for 2023 return
B-notice with respect to 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 §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.
Bulletin No. 2024–3
10/2024
2/2025
B-notice with respect to 2023 return
2/2026
2025 return filed
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
§1.6050H-2(f) of this chapter. C fails to provide the
TIN as required by §1.6050H-2(f) of this chapter.
403
2024 return filed
4/2026
6721 penalty notice for 2024 return
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
§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.
(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 §301.67211(a) for the 2025 information return is not waived.
(6) Example 6—(i) Table.
January 16, 2024
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 to 2023 return
2024 return filed
4/2025
10/2025
2/2026
4/2026
6721 penalty notice for 2023 return
B-notice with respect to 2024 return
2025 return filed
6721 penalty notice for 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 §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
§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
January 16, 2024
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
§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 1099MISC, 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 §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 §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 1099MISC make the penalties under sections 6721 and
6722 applicable to Q. See §§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 §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
404
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 §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 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
Bulletin No. 2024–3
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
Bulletin No. 2024–3
payee statements required to be furnished
after January 4, 2017.
Douglas W. O’Donnell,
Deputy Commissioner for Services and
Enforcement.
Approved: November 29, 2023.
405
Lily L. Batchelder,
Assistant Secretary of the Treasury (Tax
Policy).
(Filed by the Office of the Federal Register on
December 18, 2023, 8:45 a.m., and published in the
issue of the Federal Register for December 19, 2023,
88 FR 87696)
January 16, 2024
Part III
Additional Interim Guidance Regarding the Application of the Corporate Alternative Minimum Tax
under Sections 55, 56A, and 59 of the Internal Revenue Code
Notice 2024-10
SECTION 1. OVERVIEW
This notice provides additional interim
guidance regarding the application of the
new corporate alternative minimum tax
(CAMT). The CAMT was added to the
Internal Revenue Code (Code)1 by the
enactment of § 10101 of Public Law 117169, 136 Stat. 1818, 1818-1828 (August
16, 2022), commonly referred to as the
Inflation Reduction Act of 2022 (IRA),
effective for taxable years beginning
after December 31, 2022. Notice 20237, 2023-3 I.R.B. 390, announced that the
Department of the Treasury (Treasury
Department) and the Internal Revenue
Service (IRS) intend to issue proposed
regulations (forthcoming proposed regulations) addressing the application of the
CAMT. Notice 2023-7, Notice 2023-20,
2023-10 I.R.B. 523, and Notice 202364, 2023-40 I.R.B. 974, each provided
interim guidance regarding the application of the CAMT and indicated that the
Treasury Department and the IRS intend
to issue forthcoming proposed regulations
that would include proposed rules consistent with such interim guidance. Each of
the notices further provided that taxpayers may rely on such interim guidance
for taxable years ending on or before the
date forthcoming proposed regulations are
published in the Federal Register and, in
any event, for any taxable year that begins
before January 1, 2024. Notice 2023-42,
2023-26 I.R.B. 1085, provided relief from
the addition to tax under § 6655 in connection with the application of the CAMT.
Section 2 of this notice provides a
summary of relevant law and other information relevant to this notice. Section 3
of this notice provides additional interim
guidance regarding the application of
the CAMT to shareholders of controlled
foreign corporations that taxpayers may
1
rely on for Covered CFC Distributions
received on or before the date forthcoming proposed regulations are published
in the Federal Register and, regardless of
when forthcoming proposed regulations
are published in the Federal Register,
for Covered CFC Distributions received
before January 1, 2024. Section 4 of this
notice modifies and clarifies the interim
guidance provided in Notice 2023-64
regarding the application of the CAMT to
an affiliated group of corporations filing a
consolidated return for any taxable year
(tax consolidated group). The Treasury
Department and the IRS intend to propose
rules in forthcoming proposed regulations
consistent with the interim guidance provided in, and modified and clarified by,
sections 3 and 4 of this notice. Section 5 of
this notice provides applicability dates and
requirements for relying on the interim
guidance provided in, and modified and
clarified by, this notice until the issuance
of forthcoming proposed regulations. Section 6 of this notice requests comments
on the interim guidance provided in this
notice. Section 7 of this notice describes
the effect this notice has on other documents. Section 8 of this notice provides
drafting and contact information.
SECTION 2. BACKGROUND
.01 Overview of the CAMT. Section 10101 of the IRA amended § 55 to
impose the CAMT based on the “adjusted
financial statement income” (AFSI) of an
applicable corporation for taxable years
beginning after December 31, 2022. A
corporation is an applicable corporation
subject to the CAMT for a taxable year
if it meets the average annual AFSI test
for one or more taxable years that (i) are
before that taxable year, and (ii) end after
December 31, 2021. Section 55(a) provides that, for the taxable year of an applicable corporation, the amount of CAMT
imposed by § 55 equals the excess (if any)
of (i) the tentative minimum tax for the
taxable year, over (ii) the sum of the regular tax imposed by chapter 1 of the Code
(chapter 1), within the meaning of § 55(c),
for the taxable year plus the tax imposed
under § 59A for the taxable year. Section
55(b)(2)(A) provides that, in the case of an
applicable corporation, the tentative minimum tax for the taxable year is the excess
of (i) 15 percent of AFSI for the taxable
year (as determined under § 56A), over
(ii) the CAMT foreign tax credit (CAMT
FTC) for the taxable year (as determined
under § 59(l)). In the case of any corporation that is not an applicable corporation,
§ 55(b)(2)(B) provides that the tentative
minimum tax for the taxable year is zero.
For additional background on the CAMT,
see section 2 of Notice 2023-7 and section
2 of Notice 2023-64.
.02 Definition of AFSI. Section 56A(a)
provides that, for purposes of §§ 55
through 59, the term AFSI means, with
respect to any corporation for any taxable
year, the net income or loss of the taxpayer set forth on the taxpayer’s applicable financial statement (AFS) for that taxable year, adjusted as provided in § 56A.
.03 AFSI adjustments with respect to
shareholders of foreign corporations.
(1) Section 56A(c)(2)(C) provides that,
in the case of any corporation that is not
included on a consolidated return with
the taxpayer, AFSI of the taxpayer with
respect to that other corporation is determined by only taking into account dividends received from that other corporation (reduced to the extent provided by the
Secretary of the Treasury or her delegate
(Secretary) in regulations or other guidance) and other amounts that are includible in gross income or deductible as a
loss under chapter 1 (other than amounts
required to be included under §§ 951 and
951A or such other amounts as provided
by the Secretary) with respect to that other
corporation.
(2) Section 56A(c)(3)(A) provides an
adjustment to the AFSI of a taxpayer for
any taxable year in which the taxpayer is
a United States shareholder (within the
meaning of § 951(b) or, if applicable,
§ 953(c)(1)(A)) (each such shareholder,
a U.S. Shareholder) of one or more controlled foreign corporations (each within
the meaning of § 957 or, if applicable,
Unless otherwise specified, all “section” or “§” references are to sections of the Code or the Income Tax Regulations (26 CFR part 1).
January 16, 2024
406
Bulletin No. 2024–3
§ 953(c)(1)(B)) (CFC). Under this rule,
the AFSI of the taxpayer with respect to
the CFC (as determined under § 56A(c)(2)
(C)) is adjusted to also take into account
the taxpayer’s pro rata share (determined
under rules similar to the rules under
§ 951(a)(2)) of items taken into account
in computing the net income or loss set
forth on the AFS (as adjusted under rules
similar to those that apply in determining
AFSI) of each CFC with respect to which
the taxpayer is a U.S. Shareholder. The
net income or loss of a CFC set forth on
its AFS (as adjusted under rules similar to
those that apply in determining AFSI) is
referred to in this notice as Adjusted Net
Income or Loss.
(3) In addition to the authority provided in § 56A(c)(2)(C) to reduce the
amounts of dividends received by a corporation taken into account under § 56A(c)
(2)(C), § 56A(c)(15) authorizes the Secretary to issue regulations or other guidance
to provide for such adjustments to AFSI
as necessary to carry out the purposes of
§ 56A, including adjustments to prevent
the omission or duplication of any item.
(4) Taxpayers have expressed concern that, in certain cases, distributions
by CFCs may result in earnings of CFCs
being included in the AFSI of a U.S.
Shareholder of the CFC more than once,
and that this result may cause CFCs to
defer making distributions until guidance
is issued. Specifically, a duplication of
items may result if the U.S. Shareholder
includes in AFSI, under § 56A(c)(2)(C),
the amount of a dividend received from
earnings associated with Adjusted Net
Income or Loss that the U.S. Shareholder
includes in AFSI under § 56A(c)(3). Under
§ 56A(c)(3), a U.S. Shareholder includes
in its AFSI items of an upper-tier CFC and
a lower-tier CFC. A duplication of items
may also result if the upper-tier CFC
includes in Adjusted Net Income or Loss
the amount of a dividend received from the
lower-tier CFC from earnings associated
with Adjusted Net Income or Loss that the
U.S. Shareholder includes in AFSI under
§ 56A(c)(3) with respect to the lower-tier
CFC. The guidance contained in section 3
of this notice is intended to address such
potential duplication of items.
.04 AFSI adjustments for tax consolidated groups. Section 56A(c)(2)(B)
provides that except as provided in reg-
Bulletin No. 2024–3
ulations prescribed by the Secretary, if
the taxpayer is part of a tax consolidated
group, AFSI for such group for such taxable year takes into account items on the
group’s AFS that are properly allocable
to members of such group. Section 6 of
Notice 2023-64 provides guidance for
determining the net income or loss and
AFSI of a tax consolidated group when
the financial results of all members of the
tax consolidated group are included on a
single consolidated AFS.
.05 Determining an AFS.
(1) For purposes of § 56A, the term
AFS means, with respect to any taxable
year, an AFS, as defined in § 451(b)(3)
or as specified by the Secretary in regulations or other guidance, that covers that
taxable year. See § 56A(b).
(2) Section 56A(c)(2)(A) provides that,
if the financial results of a taxpayer are
reported on the AFS for a group of entities
(AFS Group), rules similar to the rules of
§ 451(b)(5) apply. Section 451(b)(5) provides that in such a situation, the AFS for
the AFS Group is treated as the AFS of the
taxpayer.
(3) Section 4 of Notice 2023-64 provides guidance for determining a taxpayer’s AFS. Section 4.02 of Notice 202364 generally provides that the term AFS
means the taxpayer’s financial statement
listed in section 4.02(1) of the notice that
has the highest priority, including the
priority within certain sections. Section
4.02(1) of the notice generally provides
that the financial statements are, in order
of descending priority: U.S. GAAP statements, IFRS statements, other government and regulatory statements, unaudited
external statements, and lastly, the taxpayer’s Federal income tax return or information return filed with the IRS.
(4) Section 4.02(5) of Notice 2023-64
provides guidance for determining a taxpayer’s AFS when the financial results of
the taxpayer are included in a financial
statement, including a Federal income tax
return, covering a group of entities (consolidated financial statement). Section
4.02(5)(a) generally provides that if a taxpayer’s financial results are consolidated
with the financial results of one or more
other taxpayers on a consolidated financial
statement, the taxpayer’s AFS is the consolidated financial statement. However,
if the taxpayer’s financial results are also
407
separately reported on a separate financial
statement that is of equal or higher priority to the consolidated financial statement,
then the taxpayer’s AFS is the separate
financial statement.
(5) Section 4.02(5)(b) of Notice 202364 provides two exceptions to the guidance in section 4.02(5)(a) that would prioritize the use of the taxpayer’s separate
financial statement over a consolidated
financial statement. Relevant to this notice
is the first exception in section 4.02(5)(b)
(i) of Notice 2023-64, which provides
that a corporation that is a member of a
tax consolidated group must use as its
AFS the consolidated financial statement
that contains the financial results of all
members of the tax consolidated group,
regardless of whether the corporation’s
financial results are also reported on a separate financial statement that is of equal or
higher priority to the consolidated financial statement.
(6) The exception in section 4.02(5)(b)
(i) of Notice 2023-64 was premised on the
understanding that the financial results of
all of the members of a tax consolidated
group would be included in a single consolidated financial statement that is not a
Federal income tax return. The Treasury
Department and the IRS have become
aware of circumstances in which not all
members of a tax consolidated group are
included in a single consolidated financial
statement that is not a Federal income tax
return. In this situation, section 4.02(5)
(b)(i) of Notice 2023-64 could be read to
permit the tax consolidated group to use
its consolidated Federal income tax return
as its AFS because there is no higher priority consolidated financial statement that
includes all members of the group. The
Treasury Department and the IRS have
determined that this result would frustrate
the purpose of the CAMT. The definition
of an AFS was broadened to include a
Federal income tax return for those entities that do not have a financial statement
that meets the criteria in sections 4.02(1)
(a) through (d) of Notice 2023-64 but that
are relevant to determine the AFSI of a
corporation for purposes of determining
whether that corporation is an applicable corporation or has a CAMT liability.
This AFS category was not intended to be
used by a corporation that otherwise has
a financial statement that meets the crite-
January 16, 2024
ria in sections 4.02(1)(a) through (d) of
Notice 2023-64. The modifications and
clarifications contained in section 4 of this
notice are intended to prevent this result
and are consistent with the original intent
of the exception.
(7) In addition, the guidance in section 4.02(5)(b)(i) of Notice 2023-64 is not
entirely clear concerning which consolidated financial statement is the AFS of a
member of a tax consolidated group when
the member has more than one consolidated financial statement. The modifications and clarifications to Notice 2023-64
contained in section 4 of this notice also
provide guidance for determining the AFS
of a member of a tax consolidated group
in such a situation.
SECTION 3. COVERED CFC
DISTRIBUTIONS RECEIVED
FROM CONTROLLED FOREIGN
CORPORATIONS
.01 Purpose. This section 3 provides
interim guidance regarding Covered CFC
Distributions (as defined in section 3.02
of this notice) that may result in earnings
of CFCs being included in AFSI of a U.S.
Shareholder more than once. This section
3 does not provide guidance regarding the
treatment of distributions received from
a CFC that are not Covered CFC Distributions, dispositions of stock of a CFC
(including the treatment of dividends under
§ 1248), or any other amounts that may
relate to ownership of stock of a CFC. The
Treasury Department and the IRS intend to
propose rules in forthcoming proposed regulations consistent with the interim guidance provided in this section 3.
.02 Covered CFC Distributions. For
purposes of this section 3, a Covered CFC
Distribution means a distribution received
with respect to stock of a CFC to the
extent it is a dividend (within the meaning
of § 316), determined without taking into
account § 959(d).
.03 Treatment of Covered CFC Distributions received by a U.S. Shareholder of
the distributing CFC. In determining the
amount included in AFSI under § 56A(c)
(2)(C) of a U.S. Shareholder of a CFC
resulting from a Covered CFC Distribution received with respect to stock of the
CFC, AFSI of the U.S. Shareholder is
determined by—
January 16, 2024
(1) Disregarding any items reported on
the U.S. Shareholder’s AFS resulting from
the receipt of the Covered CFC Distribution; and
(2) Including the U.S. Shareholder’s
items of income and deduction under
chapter 1 (for this purpose, taking into
account § 959(d) and excluding §§ 56A
and 78) resulting from the receipt of the
Covered CFC Distribution.
.04 Treatment of Covered CFC Distributions received by a CFC from another
CFC. In determining the Adjusted Net
Income or Loss of a CFC for purposes of §
56A(c)(3) resulting from a Covered CFC
Distribution received with respect to stock
of another CFC, Adjusted Net Income or
Loss of the recipient CFC is determined
by—
(1) Disregarding any items reported on
the recipient CFC’s AFS resulting from
the receipt of the Covered CFC Distribution; and
(2) Including the recipient CFC’s items
of income under chapter 1 (excluding
§ 56A) resulting from the receipt of the
Covered CFC Distribution, determined
without regard to any exclusion under
chapter 1 (for example, § 954(b)(4)), and
then reduced to the extent the Covered
CFC Distribution is excluded from—
(a) Both—
(i) The recipient CFC’s foreign personal holding company income under
§ 954(c)(3) (relating to certain income
received from related persons) or § 954(c)
(6) (relating to certain amounts received
from related CFCs); and
(ii) The recipient CFC’s gross tested
income under § 1.951A-2(c)(1)(iv) (relating to dividends received from related
persons); or
(b) The recipient CFC’s gross income
under § 959(b).
SECTION 4. MODIFICATIONS
AND CLARIFICATIONS TO AFS
GUIDANCE IN SECTIONS 4 AND 6
OF NOTICE 2023-64
.01 Purpose. This section 4 modifies
and clarifies interim guidance provided
in sections 4.02(5)(b) and 6.02 of Notice
2023-64 and provides additional interim
guidance regarding the application of sections 5 and 6 of Notice 2023-64 in light
of such modifications and clarifications.
408
The Treasury Department and the IRS
intend to propose rules in forthcoming
proposed regulations consistent with the
interim guidance provided in this section
4. Solely for formatting purposes, section
4.02 of this notice also redesignates section 4.02(5)(b)(ii) of Notice 2023-64 as
section 4.02(5)(b)(v) of Notice 2023-64
and restates it for completeness. Unless
otherwise provided, the definitions in
Notice 2023-64 apply for purposes of this
section 4.
.02 Modifications and clarifications to
section 4.02(5)(b) of Notice 2023-64. Section 4.02(5)(b) of Notice 2023-64 is modified and clarified to read as follows:
(b) Exceptions to use of Separate AFS.
(i) Tax Consolidated AFS Member has
only one Consolidated AFS that contains
the financial results of all Tax Consolidated AFS Members. Except as provided
in section 4.02(5)(b)(v) of this notice,
if a Tax Consolidated AFS Member, as
defined in section 6.03(1) of this notice,
has only one Consolidated AFS described
in section 4.02(1)(a) through (d) of this
notice that contains the financial results of
all the Tax Consolidated AFS Members,
the Tax Consolidated AFS Member must
use that Consolidated AFS as its AFS,
regardless of whether the Tax Consolidated AFS Member’s financial results also
are reported on—
(A) A Separate AFS that is of equal or
higher priority to that Consolidated AFS;
or
(B) A different Consolidated AFS that
contains the financial results of some, but
not all, Tax Consolidated AFS Members,
and that is of equal or higher priority to
that Consolidated AFS.
(ii) Tax Consolidated AFS Member
has more than one Consolidated AFS
that contains the financial results of all
Tax Consolidated AFS Members. Except
as provided in section 4.02(5)(b)(v) of
this notice, if a Tax Consolidated AFS
Member, as defined in section 6.03(1) of
this notice, has more than one Consolidated AFS described in section 4.02(1)(a)
through (d) of this notice that contains the
financial results of all Tax Consolidated
AFS Members, the Tax Consolidated AFS
Member must use as its AFS the Consolidated AFS with the highest priority under
section 4.02(1)(a) through (d) of this
notice that contains the financial results
Bulletin No. 2024–3
of all Tax Consolidated AFS Members,
regardless of whether the Tax Consolidated AFS Member’s financial results also
are reported on—
(A) A Separate AFS that is of equal or
higher priority to that Consolidated AFS;
or
(B) A different Consolidated AFS that
contains the financial results of some, but
not all, Tax Consolidated AFS Members,
and that is of equal or higher priority to
that Consolidated AFS.
(iii) Tax Consolidated AFS Member
has only one Consolidated AFS that
contains its results but does not contain results of all Tax Consolidated AFS
Members. Except as provided in section 4.02(5)(b)(v) of this notice, if a Tax
Consolidated AFS Member, as defined
in section 6.03(1) of this notice, is not
described in section 4.02(5)(b)(i) or (ii)
of this notice and has only one Consolidated AFS described in section 4.02(1)(a)
through (d) of this notice that contains its
financial results and the financial results
of some, but not all, Tax Consolidated
AFS Members, the Tax Consolidated
AFS Member must use that Consolidated
AFS as its AFS, regardless of whether the
Tax Consolidated AFS Member’s financial results also are reported on a Separate AFS that is of equal or higher priority to that Consolidated AFS.
(iv) Tax Consolidated AFS Member
has more than one Consolidated AFS
that contains its results but does not
contain results of all Tax Consolidated
AFS Members. Except as provided in
section 4.02(5)(b)(v) of this notice, if
a Tax Consolidated AFS Member, as
defined in section 6.03(1) of this notice,
is not described in section 4.02(5)(b)(i)
or (ii) of this notice and has more than
one Consolidated AFS described in section 4.02(1)(a) through (d) of this notice
that contains its financial results and the
financial results of some, but not all, Tax
Consolidated AFS Members, the Tax
Consolidated AFS Member must use as
its AFS the Consolidated AFS that contains its financial results and the financial results of the greatest number of Tax
Consolidated AFS Members (if there is
more than one such Consolidated AFS,
the Tax Consolidated AFS Member must
use the Consolidated AFS from among
them with the highest priority under sec-
Bulletin No. 2024–3
tion 4.02(1)(a) through (d) of this notice),
regardless of whether the Tax Consolidated AFS Member’s financial results
also are reported on—
(A) A Separate AFS that is of equal or
higher priority to that Consolidated AFS;
or
(B) A different Consolidated AFS that
contains the financial results of fewer Tax
Consolidated AFS Members, and that is
of equal or higher priority to that Consolidated AFS.
(v) Members of a FPMG. If a Taxpayer is a member of a FPMG and if the
FPMG Common Parent (as defined in
section 2.04(3) of this notice) prepares
a Consolidated AFS (FPMG Consolidated AFS) that includes the Taxpayer,
the Taxpayer must use the FPMG Consolidated AFS, regardless of whether
the Taxpayer’s financial results also
are reported on a Separate AFS that is
of equal or higher priority to the FPMG
Consolidated AFS.
.03 Modification to section 6.02 of
Notice 2023-64. The cross-reference provided in section 6.02 of Notice 2023-64 is
modified and clarified to read as follows:
.02 Priority of Consolidated AFS. For
rules regarding the priority of the Consolidated AFS of a Tax Consolidated Group,
see section 4.02(5)(b)(i) through (iv) of
this notice.
.04 Application of Sections 5 and 6 of
Notice 2023-64. If after the application
of section 4.02(5)(b)(i) through (iv) of
Notice 2023-64, as modified and clarified
by this notice, the AFS of each Tax Consolidated AFS Member is not the same
Consolidated AFS, then for purposes of
applying sections 5 and 6 of Notice 202364, the Tax Consolidated Group must
combine the financial results reflected
on the different AFSs of the Tax Consolidated AFS Members to form one Consolidated AFS that is treated as the AFS of
the Tax Consolidated Group (Tax Consolidated Group AFS). For purposes of the
preceding sentence, the financial results of
each Tax Consolidated AFS Member may
not be included in the Tax Consolidated
Group AFS more than once, and the Tax
Consolidated Group must make any AFS
Consolidation Entries described in section
5.02(3)(c)(iii) of Notice 2023-64 not otherwise reflected in the AFS of any member
that would have been made if such a Tax
409
Consolidated Group AFS had otherwise
been prepared.
SECTION 5. APPLICABILITY DATES
AND RELIANCE
.01 Section 3 of this notice. Taxpayers may rely on the interim guidance
described in section 3 of this notice for
Covered CFC Distributions received on
or before the date forthcoming proposed
regulations are published in the Federal
Register. However, regardless of when
forthcoming proposed regulations are
published in the Federal Register, a taxpayer may rely on the interim guidance
described in section 3 of this notice for
Covered CFC Distributions received
before January 1, 2024.
.02 Section 4 of this notice. Taxpayers may rely on the interim guidance
described in section 4.02(5)(b) of Notice
2023-64, as modified by section 4.02 of
this notice, section 6.02 of Notice 202364, as modified by section 4.03 of this
notice, and section 4.04 of this notice
for taxable years ending before the date
forthcoming proposed regulations are
published in the Federal Register. However, regardless of when forthcoming
proposed regulations are published in the
Federal Register, a taxpayer may rely on
the interim guidance described in section
4.02(5)(b) of Notice 2023-64, as modified
by section 4.02 of this notice, section 6.02
of Notice 2023-64, as modified by section
4.03 of this notice, and section 4.04 of
this notice for any taxable year beginning
before January
This text is long and has been trimmed here. Open the source document for the complete record.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.