An information return is a return a payer files with the IRS reporting payments or transactions it had with someone else, rather than reporting its own tax. Any person engaged in a trade or business, including a corporation, partnership, individual, estate and trust, who makes reportable transactions during the calendar year must file information returns to report those transactions to the IRS and furnish a copy of the information returns to recipients (IRS, Information return reporting).
Read that as two duties rather than one. Filing with the IRS and furnishing to the other party are separate obligations, carrying separate deadlines and separate penalties, and a firm can satisfy one and fail the other.
The Code Defines It by List, Not by Description
There is no general description of an information return in the statute. The term is defined by enumerating the provisions that require one.
The term means any statement of the amount of payments to another person required by a named set of sections, including section 6041(a) or (b) relating to certain information at source, section 6042(a)(1) relating to payments of dividends, section 6044(a)(1) relating to payments of patronage dividends, section 6049(a) relating to payments of interest, section 6050N(a) relating to payments of royalties, and section 6051(d) relating to information returns with respect to income tax withheld. It also means any return required by a second named set, including section 6041A(a) or (b) relating to returns of direct sellers, section 6045(a) or (d) relating to returns of brokers, section 6050H(a) relating to mortgage interest received in a trade or business from individuals, and section 6050I(a) relating to cash received in a trade or business (26 U.S.C. 6724(d)(1)).
Two things follow from a definition built that way. A document is an information return because a listed section requires it, not because it looks like one. And the list grows by amendment, so a form that is new to a firm may already be inside the definition.
The workhorse provision is the first one listed. All persons engaged in a trade or business and making payment in the course of that trade or business to another person, of rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable gains, profits and income, of $600 or more in any taxable year, shall render a true and accurate return to the Secretary setting forth the amount of such gains, profits and income and the name and address of the recipient (26 U.S.C. 6041(a)).
That section carves out payments to which section 6042(a)(1), 6044(a)(1), 6047(e), 6049(a) or 6050N(a) applies, and payments with respect to which a statement is required under the authority of section 6042(a)(2), 6044(a)(2) or 6045 (26 U.S.C. 6041(a)). So the general rule sits underneath the specific ones rather than on top of them.
The payer can also demand what it needs to comply. When necessary to make effective the provisions of the section, the name and address of the recipient of income shall be furnished upon demand of the person paying the income (26 U.S.C. 6041(c)).
An Information Return Is Not a Payee Statement
The Code defines the second document separately. The term payee statement means any statement required to be furnished under a named list of provisions, among them the statements furnished by certain pass-through entities under sections 6031(b) or (c), 6034A or 6037(b) (26 U.S.C. 6724(d)(2)).
Persons required to file information returns to the IRS must also furnish statements to the other party to the transaction, such as recipients of payments (IRS, A guide to information returns). The copy in the client’s hands and the filing at the Service are two different legal objects with two different penalty sections behind them, which is why a corrected copy sent to a recipient does not by itself fix anything at the IRS.
The Electronic Filing Threshold Is Ten
If you have 10 or more information returns, you must file them electronically, and that count includes Forms W-2 e-filed with the Social Security Administration (IRS, A guide to information returns).
The count is not read one form type at a time, which is why the sentence above reaches across to Forms W-2 filed at a different agency. That is what catches a small firm filing a handful each of several different forms. Electronic filing also needs credentials that take time. To e-file, apply for a Transmitter Control Code, and it may take up to 45 days for processing (IRS, A guide to information returns).
Due dates are not uniform across the forms, and the published table carries two conventions worth knowing before reading it. If any date shown falls on a Saturday, Sunday or legal holiday, the due date is the next business day, and dates marked with an asterisk are due to the IRS on March 31 if filed electronically (IRS, A guide to information returns).
Even the list itself is not a boundary. The published list of common payments and forms is not a complete list of all reportable payments, and the omission of a payment from the list does not mean that the payment is not reportable (IRS, A guide to information returns).
Two Failures, and Two Clocks
The penalty for the IRS side reaches two different mistakes. The failures subject to it are any failure to file an information return with the Secretary on or before the required filing date, and any failure to include all of the information required to be shown on the return or the inclusion of incorrect information (26 U.S.C. 6721(a)(2)).
A late filing and an on-time filing carrying a wrong number are the same class of failure. So are a missing box and a mistyped one.
Correction has two windows and each one lowers the charge. Where the failure is corrected on or before the day 30 days after the required filing date, a reduced penalty applies with a lower annual cap, and where it is corrected after that 30th day but on or before August 1 of the calendar year in which the required filing date occurs, an intermediate penalty applies with an intermediate cap (26 U.S.C. 6721(b)).
The dollar amounts printed in that section are not the amounts in force. For any failure relating to a return required to be filed in a calendar year beginning after 2014, each of the dollar amounts under subsections (a), (b), (d), other than paragraph (2)(A) of that subsection, and (e) is increased by a cost-of-living adjustment (26 U.S.C. 6721(f)). Read the current figures off the year’s guidance rather than off the statute.
The payee statement side has its own section. The waiver and de minimis provisions are written to apply where no penalty shall be imposed under section 6721 or 6722, naming the two separately throughout (26 U.S.C. 6724). A firm that fixes the filing and leaves the recipient copy wrong has answered one of the two.
Why the Category Matters Beyond Compliance
Information reporting is the single strongest predictor of whether income gets reported correctly. Analysis for the tax year 2014 to 2016 time frame shows that misreporting of income amounts subject to substantial information reporting and withholding is 1 percent of income, that for amounts subject to substantial information reporting but not withholding it is 6 percent, and that for income amounts subject to little or no information reporting it is 55 percent (IRS, Tax Gap Projections for Tax Year 2022, Publication 5869). That spread and what it measures are covered in the tax gap.
Those three figures are the argument for treating this work as something other than administrative overhead sitting beside the return.
Common Questions
Yes. Section 6051(d), relating to information returns with respect to income tax withheld, is one of the provisions named in the statutory definition (26 U.S.C. 6724(d)(1)(A)), and the IRS counts Forms W-2 e-filed with the Social Security Administration toward the ten return electronic filing threshold (IRS, A guide to information returns).
An information return reports what one party paid another, and a tax return reports and computes the filer’s own liability. The obligation attaches to any person engaged in a trade or business who makes reportable transactions during the calendar year (IRS, A guide to information returns), regardless of what that person’s own tax position looks like. A business with no taxable income still files them.
Nonemployee compensation is entered in box 1a of Form 1099-NEC and includes fees, commissions, prizes and awards for services performed as a nonemployee, and other forms of compensation for services performed for your trade or business by an individual who is not your employee (IRS, Instructions for Forms 1099-MISC and 1099-NEC). The comparison against the other form is worked through in the two nonemployee information returns, and the classification question that precedes it is in statutory nonemployee and commission income.
Accountably places trained offshore accountants inside US CPA and EA firms, and a firm can put a block of its own year-end information return preparation and vendor file cleanup through a trial task before anything client facing depends on it.
