New Legislation Increases Penalties for Information Return Failures, Including IRS Forms 1094 and 1095 Mandated by Health Reform

This is from EBIA:

Congress has significantly increased the penalties for failures related to information returns and individual statements required by numerous sections of the Internal Revenue Code, including health care reform’s new reporting requirements for health coverage providers and applicable large employers (ALEs) on IRS Forms 1094 and 1095.... Included in the recent trade legislation that restored the Health Coverage Tax Credit ..., the increases apply to returns and statements required after December 31, 2015. (Since the new filings under health care reform are first required in early 2016, the increased penalties will apply to them from the outset.) The penalty for general failures increases from $100 to $250 per return, and the calendar-year cap increases from $1.5 million to $3 million. (“Failures” include failure to file by the due date, failure to include all required information, and provision of incorrect information.) If failures result from intentional disregard of the filing requirements, the per-return penalty increases to $500, and the calendar year cap does not apply. Lower penalty amounts continue to apply for smaller entities and for failures corrected within certain timeframes, but those penalty amounts will also increase under the law. 

Since the increased penalties also apply to individual statement failures, there could be a double impact where a Code provision imposes dual requirements to file an information return and an individual statement. ... 

EBIA Comment: The IRS previously announced limited relief from penalties for Forms 1094 and 1095 filed and furnished in 2016, for ALEs able to show a good faith effort to comply with the new requirements.... Although these penalty increases do not seem to affect that relief, they provide additional incentives for ALEs to at least satisfy the good faith standard for the fast-approaching 2016 deadlines. It is also worth noting that these penalty provisions apply to a wide array of other information returns and individual statements required by the Code, including Forms W-2 and 1099-R. As these forms contain increasingly complex information (for example, the requirement to report the aggregate cost of employer-provided health coverage on Form W-2...), the potential for mistakes increases and higher penalty amounts raise the financial stakes for employers. ...