What Happens if a Business Forgets a 1099?
Most businesses understand that they need to issue 1099s to their independent contractors and file them with the IRS by the due dates. Occasionally, however, a company unintentionally omits a 1099 from the filing. The IRS penalties for deliberate noncompliance with filing deadlines are stringent. However, the IRS does make significant allowances for simple mistakes.
The IRS penalizes companies for not filing 1099s by the due date and for filing incorrect 1099s. Businesses must issue all 1099s including 1099-MISC forms by January 31 after the end of the calendar year. Form 1099-C is the lone exception, and businesses must issue these forms by February 15. If filing by paper, businesses must file 1099s with the IRS by February 28. If filing electronically, companies must e-file the 1099s with the IRS by March 31.
The IRS will not assess a penalty for failure to file if you can demonstrate that your error or omission was due to a reasonable cause and not intentional neglect. In general, simple forgetfulness is not a good reason. You must show that your omission was due to unforeseen events or mitigating factors. You must provide an explanation or supporting documentation that you behaved responsibly and attempted to avoid the missed filing.
If you cannot demonstrate reasonable cause, the IRS may exempt the greater of ten 1099s or 1/2 percent of the total 1099s you must file for the calendar year. In order to receive this penalty exemption, you must have filed the 1099s but failed to include all the required information or included incorrect information. In addition, you must file corrections by August 1.
As soon as you realize you forgot to send a 1099, send it. If you missed the paper filing deadline, file electronically to avoid penalties. Generally, if a company operates responsibly and tries to avoid an omission, then it may claim it acted in good faith and potentially avoid penalties. For example, if you mistakenly thought a company was a corporation and therefore should not receive a 1099, document this reason. Or if you thought you paid a contractor $500 but actually paid them $700, document this reason.
The IRS assesses the failure-to-file penalty based on when a company actually files a correct 1099. Within 30 days of the due date, the penalty is $30 per incorrect 1099. Filing after 30 days but by August 1, the penalty is $60. If your company files after August 1 or not at all, the penalty is $100 per 1099.