1099 Penalty Cases and IRS Rulings: Reasonable Cause, Intentional Disregard

In this guide

Ten lessons
All 30 at a glance
Reasonable cause
Intentional disregard
Procedure
Backup withholding and the duty to report
Questions people ask

Ten lessons

Reasonable cause is objective. A sincere belief is not enough; the question is what a reasonably prudent filer would have done (Lefcourt).
An employee’s illness or mistake is not automatically beyond your control. The regulation’s categories are narrow, and backup controls matter (RSBCO, 2024).
Blaming software needs proof. Show the malfunction, that you used it correctly, and that you checked the output, for example volume against prior years (Dealers Auto Auction, 2025).
Act responsibly before and after. Reasonable cause that excuses an income tax penalty can still fail for 1099s if you never made sure the returns were prepared (Erickson).
Keep the W-9 or W-8 the payee signed. Good-faith reliance on the TIN the payee certified is the core of a wrong-TIN defense (CCA 201615012), and the initial and annual solicitations are what the IRS asks to see (CCA 201234025, CCA 201246028).
Sloppiness is not intentional disregard, and a documented compliance process can defeat the uncapped penalty even for a repeat filer (Tysinger, Hom).
A known gap left unfixed is. Repeat failures after the IRS points out the problem, or after a waiver obtained by promising fixes, support the uncapped penalty (Bale Chevrolet, CCA 200941012).
Answer the first notice. Ignoring a Letter 98C, a penalty notice or a first collection notice can lose pre-payment review for good (Piper Trucking, Pantano).
You can test a large assessment cheaply. The penalties are divisible, so paying the penalty on one return opens a refund suit (CCA 201315017).
File late rather than never. If a return is never filed the assessment period never starts (CCA 200142021), and late 1099s do not cost section 530 protection the way unfiled ones can (Medical Emergency Care).

Chief Counsel Advice and technical advice memoranda are written to IRS staff about one taxpayer and “may not be used or cited as precedent” (IRC 6110(k)(3)). They show how the IRS reasons, which is why they are useful when writing a response. Several of the court cases involve Form 8300 rather than Form 1099; they are included because the intentional disregard and reasonable cause rules in IRC 6721 and 6724 are the same for both.

All 30 at a glance

Case or ruling	Year	Result	Lesson
Dealers Auto Auction of Southwest LLC v. Commissioner	2025	Against the payer	Relying on software can support reasonable cause only if you can document the malfunction and show you checked the output (for example, volume against prior years).
RSBCO v. United States	2024	Against the payer	An employee's personal problems are not automatically reasonable cause; the payer has to fit the specific regulatory categories and show backup controls.
CCA 201615012	2016	Favorable to the payer	Keep the signed certificate (W-8 or W-9) showing the TIN the payee gave you; good-faith reliance on it is the core of a wrong-TIN reasonable cause defense.
CCA 201246028	2012	Favorable to the payer	A Notice 972CG is a penalty notice, not a backup withholding (B) notice; answer it with reasonable cause and solicitation evidence, and treat only a CP2100 as starting backup withholding duties.
CCA 201234025	2012	Favorable to the payer	Document the initial TIN solicitation at the time of payment; following a form-specific TIN collection rule can stand in for the annual solicitation.
United States v. Quality Medical Consultants	1997	Favorable to the payer	Prompt correction and good-faith (if mistaken) reading of the instructions keep a payer at the standard per-return penalty rather than the uncapped one.
In re ACME Music Co. (ACME Music Co. v. IRS)	1996	Favorable to the payer	If you never controlled the funds, there may be no reportable payment, and an earlier IRS audit that accepted your treatment supports reasonable cause.
Erickson v. Commissioner (In re Erickson)	1994	Mixed	Reasonable cause that works for income tax penalties may fail for information returns if the payer did not take steps to make sure the returns were prepared.
John C. Hom & Associates	2015	Favorable to the payer	A credible, routine filing process can defeat intentional disregard even when the returns never arrived.
Bale Chevrolet Co. v. United States	2010	Mixed	Once the IRS has flagged a compliance gap, repeat failures without a real fix can be treated as intentional disregard.
CCA 200941012	2009	Against the payer	A waiver obtained by promising fixes becomes evidence against you if the late filings continue.
Purser Truck Sales	2008	Mixed	Prior IRS contact does not by itself prove intentional disregard, but weak procedures after that contact create real exposure.
Tysinger Motor Co. v. United States	2006	Favorable to the payer	Documented compliance procedures and evidence that misses were honest mistakes can defeat the uncapped 6721(e) penalty, even for a repeat filer.
DeGuerin v. United States	2002	Mixed	A reasonable cause defense has to be documented return by return, not argued in general terms.
Kruse	2002	Favorable to the payer	Intentional disregard is a factual question, and a payer with a credible story can take it to a jury.
Bickham Lincoln-Mercury Inc. v. United States	1999	Against the payer	Settling the criminal side of a reporting failure does not end civil 6721 exposure unless the agreement expressly says so.
Gerald B. Lefcourt	1997	Against the payer	A deliberate choice to leave a required field blank, even on a principled legal theory, is intentional disregard unless settled law actually supports it.
Piper Trucking & Leasing	2023	Against the payer	Answer the Letter 98C or penalty notice; ignoring it lets an automated intentional disregard penalty become final and collectible.
Pantano Baptist Church v. Commissioner	2018	Against the payer	Respond to the first penalty or CDP notice; skipping it can permanently forfeit pre-payment review of an information return penalty.
CCA 201438028	2014	Mixed	There is no Tax Court petition from a 972CG; use the 972CG response and Appeals first, then CDP or a refund suit.
CCA 201315017	2013	Favorable to the payer	You can test a large 972CG assessment in a refund suit by paying the penalty on one return first.
CCA 200142021	2001	Against the payer	Unfiled information returns leave penalty exposure open indefinitely, so filing late is better than never filing.
CCA 200127043	2001	Mixed	Paying the standard 972CG penalty does not close the door on a later intentional disregard assessment.
CCA 202252008	2022	Against the payer	A CP2100 starts a backup withholding duty that the payer cannot avoid because of how the account is structured.
BM Construction v. Commissioner	2021	Against the payer	Collect a W-9 before paying contractors, and protest a backup withholding 30-day letter on time or lose the chance to contest it before paying.
CCA 201106010	2011	Against the payer	Calling a payment a 'tip' or 'referral fee' does not avoid Form 1099 reporting when it pays for a distinct service.
CCA 201049027	2010	Against the payer	Winning contractor status in a classification dispute can trigger backup withholding for every contractor paid without a TIN, so collect W-9s up front.
CCA 201037027	2010	Against the payer	Keep W-9s for as long as the account is open; the three-year retention rule will not protect you if you cannot prove certification.
Medical Emergency Care Associates	2003	Favorable to the payer	Filing late Forms 1099 costs a capped per-return penalty, but not filing them at all can cost far more, including worker classification protection.
TAM 199906037	1999	Against the payer	Get the TIN before the first payment; collecting it after an audit does not eliminate backup withholding liability for earlier payments.

Reasonable cause: what worked and what did not

Dealers Auto Auction of Southwest LLC v. Commissioner, T.C. Memo. 2025-38

Against the payerU.S. Tax Court · IRC 6050I, 6721, 6722, 6724(a); Treas. Reg. 301.6724-1(a)-(c)

Facts: After earlier Form 8300 penalties, an auto auction bought AuctionMaster software to track cash payments, but for 2016 it produced only 116 Forms 8300 when 382 were required. The IRS assessed $118,140, and in CDP the company argued reasonable cause based on a software failure.
Holding: Reviewing the liability de novo, the court found no reasonable cause and sustained the penalties.
Why: The court rejected the IRS's blanket position that relying on software can never be reasonable cause, but the filer has to prove the software actually malfunctioned and that the filer used it correctly with adequate controls. The sharp drop in forms compared with prior years should have warned the company, and the record showed nothing about installation, training or verification.

“Software malfunctions can qualify as a failure beyond the filer's control when it is shown the filer used the software correctly.”

Lesson: Relying on software can support reasonable cause only if you can document the malfunction and show you checked the output (for example, volume against prior years).

RSBCO v. United States, 104 F.4th 551 (5th Cir. 2024)

Against the payerU.S. Court of Appeals for the Fifth Circuit · IRC 6721, 6724(a); Treas. Reg. 301.6724-1(c)(1), (c)(2), (c)(5)

Facts: RSBCO's 2012 FIRE submission of more than 21,000 information returns was rejected, and its operations manager, who was seriously ill, did not file processable replacements until July 2013. The IRS assessed $510,700, and a jury awarded RSBCO a refund and fees.
Holding: The verdict and fee award were vacated and the case remanded for a new trial, because the jury instruction on 'impediments' conflicted with the reasonable cause regulation.
Why: The instruction let the jury treat any 'hindrance' (including an employee's illness) as an event beyond the filer's control. The regulation limits that defense to agent conduct that meets its specific tests, such as showing reasonable business judgment in contracting with the agent, or to the absence of the person with sole filing responsibility due to serious illness, which causes the business records to be unavailable.

“Yet plainly not every action of a filer's agent excuses improper filing”

Lesson: An employee's personal problems are not automatically reasonable cause; the payer has to fit the specific regulatory categories and show backup controls.

IRS Chief Counsel Advice 201615012 (Feb. 23, 2016, released Apr. 8, 2016)

Favorable to the payerIRS Office of Chief Counsel (Procedure & Administration) · IRC 6721, 6722, 6723, 6724(a), 6109; Treas. Reg. 1.1441-6T(b), 1.1441-7(b), 301.6724-1(c)(6), 31.3406(j)-1(d)

Facts: A withholding agent reported, on Forms 1042-S, invalid TINs that foreign beneficial owners had supplied on Forms W-8BEN claiming treaty benefits. LB&I asked whether it could impose penalties for every invalid TIN found on audit.
Holding: Penalties should normally not be asserted unless the withholding agent knew or should have known the TIN was wrong, although 6721 can apply in appropriate cases.
Why: The regulations let a withholding agent rely on a withholding certificate absent actual knowledge or reason to know, and incorrect payee information relied on in good faith is an event beyond the filer's control. The memo also notes that the IRS will not treat a decision not to use TIN Matching as showing a lack of reasonable cause.

“normally should not be asserted unless the withholding agent knew or should have known that the TINs on the Forms W-8BEN were incorrect”

Lesson: Keep the signed certificate (W-8 or W-9) showing the TIN the payee gave you; good-faith reliance on it is the core of a wrong-TIN reasonable cause defense.

IRS Chief Counsel Advice 201246028 (Sept. 28, 2012, released Nov. 16, 2012; same text released as CCA 201248022)

Favorable to the payerIRS Office of Chief Counsel (Procedure & Administration) · IRC 3406, 3402(q)(5), 6721, 6724(a); Treas. Reg. 31.3406(d)-5, 31.3406(g)-2(d), 301.6724-1(d)(2), (f)

Facts: After a casino received Notice 972CG proposing 6721 penalties for name/TIN mismatches on Forms W-2G for slot winnings, examiners asked it for copies of backup withholding notices sent to patrons. The casino did not have them and filed a protest.
Holding: Slot winnings are subject to backup withholding only if the patron gave a TIN without the proper number of digits, and payors should not be expected to send backup withholding notices in response to a Notice 972CG.
Why: Notice 972CG and Publication 1586 do not tell payors to backup withhold; only a CP2100/CP2100A does. The defense to a 972CG is reasonable cause under 6724, shown by initial and annual TIN solicitations under 301.6724-1(f).

“Notice 972 (CG) does not state that the payor is subject to backup withholding”

Lesson: A Notice 972CG is a penalty notice, not a backup withholding (B) notice; answer it with reasonable cause and solicitation evidence, and treat only a CP2100 as starting backup withholding duties.

IRS Chief Counsel Advice 201234025 (May 11, 2012, released Aug. 24, 2012)

Favorable to the payerIRS Office of Chief Counsel (Procedure & Administration) · IRC 6721, 6724(a); Treas. Reg. 301.6724-1(c)(6), (d)(2), (f)(1), (f)(5); 7.6041-1

Facts: A casino collected patrons' TINs and two forms of ID for each slot jackpot of $1,200 or more, but some 2006 Forms W-2G had incorrect TINs, and the IRS proposed 6721 penalties. Examiners demanded proof of annual solicitations, and the casino said it had acted responsibly.
Holding: The casino met an exception to the annual solicitation requirement and is treated as having acted in a responsible manner.
Why: Under 301.6724-1(f)(5)(i), a filer that follows a specific regulatory TIN collection procedure (here the W-2G rules) at the time of each payment does not have to make an annual solicitation. The no-payment exception in (f)(5)(ii) may also apply, unless the casino paid the same patron again with a bad TIN in the solicitation year.

“the filer will be deemed to have acted in a responsible manner if the filer makes an initial and annual solicitation upon the payee”

Lesson: Document the initial TIN solicitation at the time of payment; following a form-specific TIN collection rule can stand in for the annual solicitation.

United States v. Quality Medical Consultants, Inc., 214 B.R. 246 (M.D. Fla. 1997), aff'g in part In re Quality Medical Consultants, Inc., 192 B.R. 777 (Bankr. M.D. Fla. 1995)

Favorable to the payerU.S. District Court, Middle District of Florida (bankruptcy appeal) · IRC 6721(a), 6721(e), 6722(a), 6722(c)

Facts: A company did not send 1993 Forms 1099-MISC to corporate payees because an employee misread the instructions, and its 1994 Forms 1099 were late during a chaotic bankruptcy. The IRS claimed $245,314 in intentional disregard penalties, and the bankruptcy court cut that to $1,350 in standard penalties.
Holding: The court affirmed that intentional disregard penalties did not apply to the 1993 Forms 1099-MISC or the 1994 filings, and remanded the 1993 Form 1099-INT issue.
Why: Intentional disregard requires a knowing or willful failure based on all the facts. Misreading the instructions was a mistake, and the company's good-faith efforts and prompt correction after IRS contact weighed against the higher penalty.

“When a taxpayer makes a good faith effort to comply with tax regulations, intentional disregard penalties are less likely to be upheld.”

Lesson: Prompt correction and good-faith (if mistaken) reading of the instructions keep a payer at the standard per-return penalty rather than the uncapped one.

In re ACME Music Co. (ACME Music Co. v. IRS), 196 B.R. 925 (Bankr. W.D. Pa. 1996)

Favorable to the payerU.S. Bankruptcy Court, Western District of Pennsylvania · IRC 3406, 6041, 6698, 6721, 6722, 6724(a)

Facts: A jukebox and amusement machine operator split machine receipts with location owners and did not issue Forms 1099 or backup withhold on the owners' share. The IRS claimed about $2.89 million, including backup withholding and information return penalties for 1988 to 1992.
Holding: The court granted summary judgment for ACME: dividing receipts was not a 'payment' under 6041, so there was no reporting or backup withholding duty, and reasonable cause would have excused the penalties in any event (the 'up-front payments' issue was reserved).
Why: Following Manchester Music, a payment requires the payor to have had possession, dominion or control over the funds, and ACME never controlled the owners' share. On reasonable cause, ACME relied on earlier IRS audits that had accepted its treatment and on conflicting authority, which showed ordinary business care.

“reasonable cause means nothing more than the exercise of ordinary business care and prudence.”

Lesson: If you never controlled the funds, there may be no reportable payment, and an earlier IRS audit that accepted your treatment supports reasonable cause.

Erickson v. Commissioner (In re Erickson), 172 B.R. 900 (Bankr. D. Minn. 1994)

MixedU.S. Bankruptcy Court, District of Minnesota · IRC 6651, 6721(a), 6722, 6724(a); Treas. Reg. 301.6724-1(a), (d)

Facts: A home builder who was paralyzed in 1984 relied on a bookkeeper who filed his 1986 to 1989 income tax returns late, and the W-2s and 1099s for 1985 to 1989 were also not timely filed. The IRS assessed income tax additions and information return penalties.
Holding: The disability and reliance on the bookkeeper excused the income tax filing additions but not the 6721 and 6722 penalties.
Why: Under 301.6724-1, the filer must show mitigating factors or events beyond its control and must also have acted responsibly before and after the failure. Erickson did not make sure the bookkeeper had the information needed to prepare the information returns, so he did not act responsibly.

“the filer must act in a responsible manner both before and after the failure occurred.”

Lesson: Reasonable cause that works for income tax penalties may fail for information returns if the payer did not take steps to make sure the returns were prepared.

Intentional disregard: when the uncapped penalty sticks

John C. Hom & Associates, Inc. v. Commissioner, T.C. Summary Opinion 2015-49

Favorable to the payerU.S. Tax Court (small case, nonprecedential) · IRC 6721(a), 6721(e), 6330; Treas. Reg. 301.6721-1(f)

Facts: An engineering firm gave 2004 and 2006 Forms W-2 to its employees but never filed them, or the W-3, with SSA. The IRS assessed 6721(e) intentional disregard penalties and filed a lien.
Holding: Reviewing de novo in CDP, the court found the firm did not intentionally disregard the filing requirement, so the 6721(e) penalty did not apply (the IRS had not asserted the 6721(a) penalty in the alternative).
Why: The owner credibly testified that he believed the forms were filed because he followed a routine of saving copies after mailing. Two years of misses was not a pattern, and because compliance costs almost nothing, no rational filer would choose to risk the penalty.

“the evidence does establish that petitioner did not intentionally disregard its filing obligation for Forms W-2 and W-3.”

Lesson: A credible, routine filing process can defeat intentional disregard even when the returns never arrived.

Bale Chevrolet Co. v. United States, 620 F.3d 868 (8th Cir. 2010)

MixedU.S. Court of Appeals for the Eighth Circuit · IRC 6050I, 6721(e), 7430

Facts: A 1996 audit found that an auto dealer had missed a Form 8300, and a 2000 audit found it had missed four of five required Forms 8300 for 1998 through 2000, leading to $100,000 in intentional disregard penalties. The dealer paid and sued, the IRS settled and withdrew the penalty, and the dealer then asked for litigation costs.
Holding: Fees were denied because the government's position was substantially justified: a company that knows its reporting system is inadequate and does not fix it can face intentional disregard penalties.
Why: The court found nothing in 6721's legislative history that keeps the IRS from treating a failure to fix a known-deficient compliance system as intentional disregard. The decisive facts were the earlier violation, the dealer's acknowledgment that its system was deficient, and the 80 percent failure rate afterward.

“despite knowing that its reporting system is inadequate to ensure compliance with § 6050I, fails to remedy those flaws and commits subsequent violations.”

Lesson: Once the IRS has flagged a compliance gap, repeat failures without a real fix can be treated as intentional disregard.

IRS Chief Counsel Advice 200941012 (May 13, 2009, released Oct. 9, 2009)

Against the payerIRS Office of Chief Counsel (Procedure & Administration) · IRC 6721(a), 6721(e); Treas. Reg. 301.6721-1(f)(2), (f)(3)

Facts: A high-volume filer filed Forms 1099 late for several years, got Notice 972CG penalties waived after promising fixes, and then filed millions of Year 5 Forms 1099 about four months late despite repeated IRS e-mails and letters. It blamed 'unanticipated growth.'
Holding: The IRS may assert the uncapped 6721(e) intentional disregard penalty.
Why: All four regulatory factors pointed to intentional disregard: a pattern of late filing, no prompt correction after IRS contact, ignoring written requests, and a penalty smaller than the cost of compliance. The filer furnished payee statements on time and filed on time the next year despite triple the volume, which showed the delay was a resource decision.

“The evidence suggests that this was a conscious business decision.”

Lesson: A waiver obtained by promising fixes becomes evidence against you if the late filings continue.

Purser Truck Sales, Inc. v. United States, 710 F. Supp. 2d 1334 (M.D. Ga. 2008)

MixedU.S. District Court, Middle District of Georgia · IRC 6050I, 6721(e), 6722(c), 6724(a); Treas. Reg. 301.6721-1(f)

Facts: A used truck dealer did not file Forms 8300 for four of five 2001 cash transactions, after a 1997 IRS examination had explained the requirement to it. The IRS assessed maximum intentional disregard penalties, and the dealer paid and sued for a refund.
Holding: Both sides' motions for summary judgment were denied because a factfinder had to decide whether lax procedures amounted to intentional disregard.
Why: Because 6724 contrasts reasonable cause with willful neglect, intentional disregard must be something more culpable than willful neglect. The dealer's attempts to build a compliance system, its very few cash deals, and its unsophisticated bookkeeping could support a finding of mere sloppiness, but the record could also support willfulness.

“Intentional disregard," must by inference be something greater than willful neglect.”

Lesson: Prior IRS contact does not by itself prove intentional disregard, but weak procedures after that contact create real exposure.

Tysinger Motor Co. v. United States, 428 F. Supp. 2d 480 (E.D. Va. 2006)

Favorable to the payerU.S. District Court, Eastern District of Virginia · IRC 6050I, 6721(e), 6724(a)

Facts: An auto dealer failed to file Form 8300 for four of eight reportable cash transactions in 1999 and 2000, even though it had a compliance system in place. The IRS assessed the $100,000 maximum ($25,000 per form) as intentional disregard, relying on earlier defaults.
Holding: The dealer did not act with intentional disregard and recovered the $100,000 plus interest.
Why: No one at the company consciously decided not to report; the misses were mistakes by front-line staff handling very rare cash deals. The IRS's practice of treating any failure after earlier defaults as automatically willful improperly turned an intent-based penalty into strict liability.

“Sloppiness is not the same as willfulness, particularly in a case such as this one where the business had extraordinarily few cash transactions.”

Lesson: Documented compliance procedures and evidence that misses were honest mistakes can defeat the uncapped 6721(e) penalty, even for a repeat filer.

DeGuerin v. United States, 214 F. Supp. 2d 726 (S.D. Tex. 2002)

MixedU.S. District Court, Southern District of Texas · IRC 6050I, 6721(e), 6724(a)

Facts: Criminal defense attorneys left client-identifying information off 19 Forms 8300 filed in 1995, citing privilege. The IRS assessed $25,000 per form for intentional disregard.
Holding: The omissions were knowing and voluntary, but whether there was reasonable cause for each form raised fact questions, so both summary judgment motions were denied.
Why: Withholding information on purpose satisfies intentional disregard. Reasonable cause, however, requires specific facts showing a reasonable basis for believing each omitted name was privileged; general research into filing duties and conclusory statements were not enough to win on summary judgment.

“The attorney-client privilege shields the identity of a client or fee information only where revelation of such information would disclose other privileged communications”

Lesson: A reasonable cause defense has to be documented return by return, not argued in general terms.

Kruse, Inc. v. United States, 213 F. Supp. 2d 939 (N.D. Ind. 2002)

Favorable to the payerU.S. District Court, Northern District of Indiana · IRC 6050I, 6721(a), 6721(e)

Facts: An auto auction company did not file Forms 8300 for about 52 cash transactions over $10,000 from 1989 to 1992, and the IRS assessed penalties. A jury tried a test transaction to decide whether the failure was intentional.
Holding: The government's motion for judgment notwithstanding the verdict and for a new trial was denied, leaving in place the jury's finding of no intentional disregard.
Why: Intentional disregard is a fact question that depends on all the circumstances of the filing. The evidence was enough for a jury to find that Kruse did not intentionally disregard its obligation.

“A determination of intentional disregard requires a consideration of all factors regarding the filing of the form.”

Lesson: Intentional disregard is a factual question, and a payer with a credible story can take it to a jury.

Bickham Lincoln-Mercury Inc. v. United States, 168 F.3d 790 (5th Cir. 1999)

Against the payerU.S. Court of Appeals for the Fifth Circuit · IRC 6050I, 6721(e), 7203

Facts: A car dealer pleaded guilty under 7203 for failing to file Form 8300 on two cash transactions and paid a $5,000 criminal fine. About a year later the IRS imposed a $27,000 civil 6721 penalty for the same failures.
Holding: The civil penalty was upheld because the plea agreement's bar on 'prosecution' covered only criminal proceedings, and double jeopardy did not apply.
Why: The plea agreement did not mention civil liability. Civil information return penalties can be imposed on top of criminal sanctions for the same conduct.

“Withholding required information from the IRS because of an 'intentional disregard of the filing requirement' can lead to a civil penalty”

Lesson: Settling the criminal side of a reporting failure does not end civil 6721 exposure unless the agreement expressly says so.

Gerald B. Lefcourt, P.C. v. United States, 125 F.3d 79 (2d Cir. 1997)

Against the payerU.S. Court of Appeals for the Second Circuit · IRC 6050I, 6721(e), 6724(a); Treas. Reg. 301.6721-1(f)(2), 301.6724-1

Facts: A criminal defense firm received more than $10,000 in cash from a client and filed Form 8300 but deliberately left out the client's identity, citing attorney-client privilege. The IRS assessed a $25,000 intentional disregard penalty, and the firm paid it and sued for a refund.
Holding: Leaving required information off on purpose is intentional disregard, and the firm had no reasonable cause because it had no objectively reasonable legal basis for withholding the name.
Why: Intentional disregard turns on whether the omission was voluntary, not on whether the filer believed it was legally justified. The reasonable cause test is objective: whether a reasonably prudent person (here, a reasonably prudent attorney) would have withheld the information under existing law. Settled precedent made client identity non-privileged in these circumstances, so a good-faith belief was not enough.

“it is irrelevant that the filer may have believed he was legally justified in withholding such information.”

Lesson: A deliberate choice to leave a required field blank, even on a principled legal theory, is intentional disregard unless settled law actually supports it.

Procedure: how a penalty is contested, and how the chance is lost

Piper Trucking & Leasing, LLC v. Commissioner, 161 T.C. No. 3 (2023)

Against the payerU.S. Tax Court · IRC 6721(e), 6751(b), 6320, 6330

Facts: An employer did not file its 2015 Forms W-2 and W-3 with SSA and ignored SSA warning letters and the IRS Letter 98C. The IRS's automated CAWR program assessed a 6721(e) penalty and later filed a lien, and the employer requested a CDP hearing.
Holding: A 6721(e) penalty assessed through the CAWR program is 'automatically calculated through electronic means' and needs no written supervisory approval under 6751(b); the lien was sustained.
Why: The penalty was set entirely by the computer, with no human involvement, which puts it within the 6751(b)(2)(B) exception. The employer did not dispute the underlying liability or propose an alternative, so there was nothing else to review.

“a section 6721(e) penalty assessed through respondent's CAWR computer program is not subject to the section 6751(b)(1) supervisory approval requirement.”

Lesson: Answer the Letter 98C or penalty notice; ignoring it lets an automated intentional disregard penalty become final and collectible.

Pantano Baptist Church v. Commissioner, T.C. Summary Opinion 2018-3

Against the payerU.S. Tax Court (small case, nonprecedential) · IRC 6721(a), 6721(e), 6320, 6330(c)(2)(B)

Facts: A church did not get its 2010 and 2011 Forms W-2 to SSA, did not respond to CP215 penalty notices, and was assessed about $12,300 in 6721(e) penalties. It ignored a levy notice with hearing rights and later tried to contest the penalties in a lien CDP hearing.
Holding: The church could not challenge the penalties because it had already passed up a prior opportunity (the levy notice), and the lien was sustained.
Why: Section 6721 penalties are assessable without deficiency procedures, so a CDP hearing can be the only pre-payment forum. That forum is lost once the taxpayer ignores an earlier CDP notice for the same penalty.

“As assessable penalties, section 6721 penalties are not subject to deficiency procedures.”

Lesson: Respond to the first penalty or CDP notice; skipping it can permanently forfeit pre-payment review of an information return penalty.

IRS Chief Counsel Advice 201438028 (Aug. 22, 2014, released Sept. 19, 2014)

MixedIRS Office of Chief Counsel · IRC 6721(e), 6671, 7422, 6320/6330

Facts: IRS staff asked whether an intentional disregard penalty letter could say the penalty was being 'assessed.' The underlying question was what review the payer could get.
Holding: The 6721 penalty is assessable without deficiency procedures, so the payer's remedies are paying and suing for a refund or using collection due process.
Why: Assessable penalties under chapter 68 are not subject to a notice of deficiency or a pre-assessment Tax Court petition. Judicial review therefore comes either through a refund suit after payment or through a CDP hearing.

“The taxpayer would need to pay and bring a refund suit to challenge the penalty (unless the taxpayer uses CDP procedures).”

Lesson: There is no Tax Court petition from a 972CG; use the 972CG response and Appeals first, then CDP or a refund suit.

IRS Chief Counsel Advice 201315017 (Dec. 20, 2012, released Apr. 12, 2013)

Favorable to the payerIRS Office of Chief Counsel (Procedure & Administration) · IRC 6721, 6722, 6724(a), 7422; Flora full-payment rule

Facts: A payer assessed intentional disregard penalties under 6721 and 6722 for five years of failing to report payments wanted to sue in district court. Appeals asked whether it had to pay the full penalties first.
Holding: Penalties under 6721 and 6722 are divisible, so a payer can pay the penalty for a single failure and then file a refund claim and suit.
Why: Each penalty is imposed per return or statement, is adjusted for the circumstances of each failure, and is waived failure by failure under 6724(a), which is the hallmark of a divisible, transaction-based penalty. The annual dollar cap does not turn it into a single lump-sum penalty.

“The current section 6721 and section 6722 penalties are both divisible penalties for the purpose of establishing refund suit jurisdiction.”

Lesson: You can test a large 972CG assessment in a refund suit by paying the penalty on one return first.

IRS Chief Counsel Advice 200142021 (Sept. 5, 2001, released Oct. 19, 2001)

Against the payerIRS Office of Chief Counsel (TE/GE, with Procedure & Administration analysis) · IRC 6721, 6722, 6671(a), 6501(a), 6501(c)(3)

Facts: A company never issued Forms 1099-MISC to its agents. An examiner asked whether the time to assess 6721 and 6722 penalties had run.
Holding: These penalties are assessed like taxes, and where no return was filed the statute of limitations never started.
Why: Section 6671 treats chapter 68 assessable penalties as taxes for assessment and collection. Even if an information return counts as a return under 6501, a failure to file means 6501(c)(3) allows assessment at any time.

“Neither the Code nor the Treasury Regulations provide a statute of limitations for the assessment of penalties imposed pursuant to sections 6721 and 6722.”

Lesson: Unfiled information returns leave penalty exposure open indefinitely, so filing late is better than never filing.

IRS Chief Counsel Advice 200127043 (Apr. 25, 2001, released July 6, 2001)

MixedIRS Office of Chief Counsel (Procedure & Administration) · IRC 6721(a), 6721(e), 6204(a); Treas. Reg. 301.6721-1(a)(1)

Facts: The Detroit Computing Center asked whether it could assess both the standard 6721(a) penalty and the 6721(e) penalty for the same return. It also asked whether it could later substitute 6721(e) for a 6721(a) penalty already assessed or paid.
Holding: Both cannot be assessed for the same return, but the IRS may abate the 6721(a) penalty and assess 6721(e) while the limitations period is open.
Why: The regulation allows only one penalty per information return. A supplemental assessment is allowed under 6204(a), and abatement does not prevent the IRS from reasserting a liability absent an express agreement.

“the Service cannot assess penalties against a taxpayer for the same violation under both sections 6721(a) and 6721(e) of the Code.”

Lesson: Paying the standard 972CG penalty does not close the door on a later intentional disregard assessment.

Backup withholding and the duty to report

IRS Chief Counsel Advice 202252008 (Nov. 16, 2022, released Dec. 30, 2022)

Against the payerIRS Office of Chief Counsel (Procedure & Administration) · IRC 3403, 3406(a)(1)(A)-(B), 6041; Treas. Reg. 31.3406(a)-2, 31.3406(a)-4(a), 1.6041-1(h)

Facts: A redacted payer filed Forms 1099-INT for interest paid to recipients with missing or incorrect TINs, received CP2100 notices, and did nothing, arguing it could not backup withhold because the funds were held in trust. It also noted that some 'whereabouts unknown' payees had never received the funds.
Holding: The payer must backup withhold; the trust arrangement does not exempt it, and amounts set aside and payable on demand to unlocated payees are also subject to backup withholding.
Why: A payor required to file under 6041 must also backup withhold, and a payor that fails to do so is liable under 3403. An amount is paid when it is credited or made available without substantial restriction, so funds the payees can draw on demand count as paid.

“Backup withholding, if applicable, applies at the time of payment.”

Lesson: A CP2100 starts a backup withholding duty that the payer cannot avoid because of how the account is structured.

BM Construction v. Commissioner, T.C. Memo. 2021-13

Against the payerU.S. Tax Court · IRC 3406, 6651(a)(1)-(2), 6330(c)(2)(B)

Facts: An examination found that a construction sole proprietorship had not obtained TINs from certain subcontractors or issued Forms 1099, and the IRS proposed 2012 backup withholding in a 30-day letter. The business filed no protest, $31,322 of backup withholding plus additions was assessed, and it challenged a levy in CDP.
Holding: The 30-day letter was mailed and gave a prior opportunity to dispute the liability, so the backup withholding could not be contested in CDP, and the levy was sustained.
Why: Section 3406 requires a payor to withhold when a payee does not furnish a TIN, and the payor owes the tax it should have withheld. Because the business ignored the 30-day letter's Appeals offer, CDP review was limited to abuse of discretion.

“Sec. 3406 requires a payor to deduct and withhold tax from certain payments not otherwise subject to withholding if the payee taxpayer fails to cooperate”

Lesson: Collect a W-9 before paying contractors, and protest a backup withholding 30-day letter on time or lose the chance to contest it before paying.

IRS Chief Counsel Advice 201106010 (Dec. 1, 2010, released Feb. 11, 2011)

Against the payerIRS Office of Chief Counsel (TE/GE) · IRC 6041, 6053, 6721, 6724(a); Treas. Reg. 301.6724-1(a), (b), (d)

Facts: Adult entertainment clubs paid taxicab drivers cash 'referral fees' for delivering patrons and did not issue Forms 1099, arguing the payments were tips the drivers should report to their employers. The IRS asked how the payments should be reported.
Holding: The payments are drivers' income for services separate from their cab employment, so the clubs must file Forms 1099 under 6041 for drivers paid $600 or more.
Why: Payment depended on delivering a paying patron, not on providing transportation, so the 6041(e) tip exception did not apply. Whether 6721 penalties apply depends on reasonable cause, which requires mitigating factors or events beyond the filer's control plus responsible conduct, judged objectively under Lefcourt.

“Whether or not the filer's actions were reasonable is an objective inquiry.”

Lesson: Calling a payment a 'tip' or 'referral fee' does not avoid Form 1099 reporting when it pays for a distinct service.

IRS Chief Counsel Advice 201049027 (Oct. 5, 2010, released Dec. 10, 2010)

Against the payerIRS Office of Chief Counsel (TE/GE, Employment Tax) · IRC 3406, 7436, 6213(a), 6501(a), 6503(a)

Facts: In worker classification cases, workers may end up treated as independent contractors after a 7436 Notice of Determination of Worker Classification. The question was whether the Tax Court can decide the resulting backup withholding and whether the notice suspends the assessment period.
Holding: The Tax Court has no 7436 jurisdiction over backup withholding, but a properly issued notice suspends the open assessment period for backup withholding.
Why: Backup withholding applies to payments to nonemployees, while 7436 covers determinations that workers are employees, so backup withholding falls outside that proceeding. Because the IRS should not assess inconsistent liabilities while the case is pending, the 6503(a) principles suspend the period.

“The Tax Court does not have jurisdiction under § 7436 to determine the application of backup withholding liability”

Lesson: Winning contractor status in a classification dispute can trigger backup withholding for every contractor paid without a TIN, so collect W-9s up front.

IRS Chief Counsel Advice 201037027 (May 20, 2010, released Sept. 17, 2010)

Against the payerIRS Office of Chief Counsel (Procedure & Administration) · IRC 3403, 3406(a)(1)(A), (D), 3406(e), 6721, 6722, 6724; Treas. Reg. 31.3406(h)-3(g)

Facts: A financial business voluntarily disclosed that it had no Forms W-9 for some accountholders (some never obtained, some lost), did not backup withhold, and did not file some Forms 1099. It argued that the three-year W-9 retention rule and its payees' sophistication should bar any assessment.
Holding: The IRS may assess backup withholding for missing certifications even after the three-year retention period, and information return penalties do not depend on the payee's sophistication.
Why: Without a certified W-9, interest, dividend and broker payments are subject to backup withholding whether or not the TIN on file was correct, and under 3403 the payor owes what it should have withheld unless it proves the payee paid the tax. The retention rule only eases recordkeeping; a payer can defend by proving a W-9 was actually received.

“Information return penalties are based on the filer's failures and not the recipient's sophistication or tax compliance.”

Lesson: Keep W-9s for as long as the account is open; the three-year retention rule will not protect you if you cannot prove certification.

Medical Emergency Care Associates, S.C. v. Commissioner, 120 T.C. 436 (2003)

Favorable to the payerU.S. Tax Court · IRC 6721(a), 6724; Revenue Act of 1978 sec. 530

Facts: A medical practice treated 25 physicians as independent contractors but filed its 1996 Forms 1096 and 1099-MISC almost two years late. The IRS argued that the late filing disqualified it from section 530 employment tax relief.
Holding: Late Forms 1099 do not bar section 530 relief if they are eventually filed consistently with contractor treatment; the remedy for lateness is the 6721 penalty.
Why: Section 6721 already provides a specific sanction for late information returns, along with a reasonable cause waiver under 6724. The IRS could not turn a late filing into a forfeiture of employment tax relief.

“The Commissioner is entitled to require timely filing and to impose a penalty, when appropriate, for failure to timely file”

Lesson: Filing late Forms 1099 costs a capped per-return penalty, but not filing them at all can cost far more, including worker classification protection.

IRS Technical Advice Memorandum 199906037 (released Feb. 12, 1999)

Against the payerIRS National Office (Technical Advice) · IRC 3406(a)(1)(A), 3406(b)(3), 6041; Treas. Reg. 31.3406(d)-1(d), 31.3406(e)-1(b), 31.3406(b)(3)-1(b)(3)

Facts: A used car dealer paid wholesalers, body shops and detailers more than $600 each in 1995 and 1996 without collecting TINs or filing Forms 1099. It collected TINs and issued the Forms 1099 only after a 1998 audit began.
Holding: The payments were reportable under 6041 and subject to backup withholding because no TINs had been obtained at the time of payment.
Why: For nonemployee compensation, the payee must furnish a TIN (orally or in writing) before payment; otherwise withholding is required starting with the payment that brings the year's total to $600. Collecting TINs after the audit did not cure the past failure.

“the payments are subject to backup withholding under section 3406 of the Code.”

Lesson: Get the TIN before the first payment; collecting it after an audit does not eliminate backup withholding liability for earlier payments.

Questions people ask

Can I cite a Chief Counsel memo in my 972CG response?

You can describe its reasoning, but it is not precedent and binds no one. Court decisions and the regulation itself, Treas. Reg. 301.6724-1, carry the weight. A memo is most useful for showing how the IRS itself has applied the regulation to facts like yours.

Is there a Tax Court petition for a 972CG penalty?

No. Information return penalties are assessable without a notice of deficiency, so the routes are the 972CG response, Appeals, a collection due process hearing, or paying and suing for a refund (CCA 201438028, Pantano).

Does paying the standard penalty end the matter?

Not necessarily. The IRS has said it can abate the standard penalty and assess the intentional disregard penalty instead while the assessment period is open (CCA 200127043).

Which of these is the most recent?

Dealers Auto Auction of Southwest (Tax Court, April 2025), on software failure as reasonable cause, and RSBCO (Fifth Circuit, June 2024), on employee illness and the limits of the regulation.

1099 penalty cases and IRS rulings: what reasonable cause actually takes

Ten lessons

All 30 at a glance

Reasonable cause: what worked and what did not

Intentional disregard: when the uncapped penalty sticks

Procedure: how a penalty is contested, and how the chance is lost

Backup withholding and the duty to report

Questions people ask