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November 5, 1990

COMPTROLLER'S MEMORANDUM NO. 15 (1990-91)

SUBJECT: INFORMATION RETURN PENALTIES

The Improved Penalty and Compliance Act of 1989 consolidated the provisions of several Internal Revenue Service regulations and added new penalty assessments for filing incorrect or late information returns. The Forms W-2 and 1099 are information returns subject to the penalty assessments. A $50 penalty may be assessed for each information return which contains incorrect information or is not timely filed. The penalty is reduced to $15 for each failure to comply if the failure is corrected within 30 days after the return's due date. A $30 penalty applies for each failure that is corrected more than 30 days after the return's due date, but before August 1 of the calendar year in which the return was due. The Division of Accounting and Auditing will be filing corrected Forms W-2 and 1099 as necessary by the established dates to avoid or minimize the penalties to the extent possible. However, the assistance and cooperation of agencies are needed to reduce the potential liability of the State for these penalties.

Salary refunds and warrant cancellations processed subsequent to the year in which the payments occurred require corrections to amounts previously reported and thereby subject the State to penalty assessments. Therefore, agencies are requested to make every effort to submit salary refunds and warrant cancellations in the calendar year in which the overpayment occurred. Additionally, to help ensure the accuracy of the Form W-2 information, agencies are requested to use extra care in submitting employees' social security numbers, addresses, payroll amounts and retirement codes.

With regard to the Form 1099, care should be taken in adding or making changes to vendors on the vendor file to ensure that the correct tax identification number is used. The tax identification number for a sole proprietor or self-employed individual is the individual's social security number. The federal employer identification number (FEIN) is the appropriate taxpayer identification number to use for all other entities.

In the event the State is assessed penalties by the Internal Revenue Service which resulted from incorrect or late information furnished by an agency to the Division of Accounting and Auditing or because of other actions by an agency, such agency will be charged for the penalties.

Questions regarding the Form W-2 should be directed to the Bureau of State Payrolls at (904) 488-7762, Suncom 278-7762. Questions regarding the Form 1099 should be directed to the Bureau of Accounting at (904) 488-2921, Suncom 278-2921.