Penalty Drop

Late and wrong 1099s bounce down a glowing peg board into the real IRC 6721 penalty slots: $60, $130 or $340 a return. You pick when each fix gets filed and which rule protects it, and four filers later the lowest total wins.

You will learn the $60 / $130 / $340 tiers, August 1, reasonable cause, de minimis and the $100 safe harborPrivacy runs in your browser; scores stay on your device

How to play

Press Start. Each round is one filer with a handful of problem returns, shown as glowing tokens. Every play deals new filers, payees, amounts and records.
Pick a token, read its card, then decide: drop it (file the fix) or claim a rule that needs no fix: the $100 safe harbor or an inconsequential error.
To drop, aim along the calendar at the top and tap or click. The teal wall is the earliest date your team can file: the fix has to be ready, and every fix takes days of work, so order matters.
The token lands in the slot for the date its fix was filed: $60 within 30 days of the due date, $130 by August 1, $340 after. Red bumpers push tokens later.
Spend reasonable cause waivers on TIN failures with a clean solicitation record, and arm de minimis on returns filed on time that you can correct by August 1.
Four filers, lowest total penalty wins. Keyboard: arrows aim, Space drops, 1 to 7 pick a return, S, I, R and D for the rules.

The real rules behind the game

Penalty Drop scores you on the penalty in IRC 6721 for failing to file correct information returns. It uses the amounts for returns due in 2027 (tax year 2026 forms) from Rev. Proc. 2025-32, as listed on the 2026 figures page: $60 a return if the correct return is filed within 30 days of the due date, $130 if it is filed after that but by August 1, and $340 if it is filed after August 1 or never. Form 1099-NEC for 2026 is due February 1, 2027, because January 31 is a Sunday, so the 30-day window in the game ends March 3.

Annual maximums. Each tier stops at a calendar-year maximum: $698,500, $2,095,500 and $4,191,500, or $244,500, $698,500 and $1,397,000 for a small business with average annual gross receipts of $5 million or less over the three most recent tax years. The game caps each tier separately, the way the 972CG penalty estimator does. Intentional disregard has no maximum and is $690 a return or, if greater, 10% of the amounts required to be reported. In the game it applies only to returns with a memo saying the penalty is cheaper than the fix that are then left uncorrected; the real test, explained in intentional disregard: how the IRS decides, looks at what the filer knew and chose.

No fix needed. Under IRC 6721(c)(3) and the final regulations in T.D. 9984, a return whose only error is a dollar amount off by $100 or less ($25 or less for tax withheld) is treated as correct, unless the payee elects to receive a corrected statement. The safe harbor never covers a wrong TIN or name or intentional disregard. Inconsequential errors are not failures at all, but an error in a TIN, a surname or any money amount is never inconsequential. The 1099 corrections guide covers both.

De minimis. Even without reasonable cause, no penalty applies to a limited number of returns that were filed on time with incorrect or missing information and corrected by August 1: the greater of 10 returns or one-half of 1% of the returns you had to file that year (Reg. 301.6721-1(d)).

Reasonable cause. IRC 6724 waives the penalty for reasonable cause. For a missing or wrong TIN, the payee's failure is an event beyond your control only if you acted in a responsible manner, which for TINs means the required solicitations on schedule: the W-9 at onboarding, then annual solicitations or the B-Notices sent within 15 business days of each CP2100. One missed solicitation sinks the waiver. The Reg. 301.6724-1 guide and the Notice 972CG guide walk through it.

What the game simplifies. It counts only the IRC 6721 penalty on the return filed with the IRS; IRC 6722 charges the same amounts again for a wrong payee statement, so a real notice can be double. It treats reasonable cause only as the payee TIN defense, though the regulation also covers events like unavailable records. Each play deals a new filer for each round from a pool of checked scenarios, with made up names. Each token stands for one return or a batch with the same problem, the team works one fix at a time, and the pegs and bumpers stand in for real-world delays. Only one IRC 6721 penalty applies per return, at the highest tier that fits; when a waiver removes one failure, another failure on the same return can still be charged, as the 972CG cascade calculator shows.

Sources

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