The three-element test
Intentional disregard under IRC 6721(e) applies only when the facts show that the filer was required to file, "knew of or willfully disregarded the requirement to file," and "consciously chose not to file or willfully disregarded" the duty (IRM 20.1.7.8.2(1)). All three. A payer that did not know it had to file a 1099-NEC for a particular payee fails the second element, which is why "we did not know" belongs in a reasonable-cause statement even though ignorance of the law is not a waiver on its own.
The four questions
IRM 20.1.7.8.2(2). For payee statements under IRC 6722 the examiner also checks the payee's prior compliance history (IRM 20.1.7.9.1).
The first two questions are about speed. A payer that corrects within 30 days of a CP2100, a 1948-C or any other written IRS contact has, in the examiner's checklist, the fact that most strongly contradicts intentional disregard. The second two are about why. The manual's own words are that intentional disregard "may exist when the filer believes it would be less expensive to pay the penalties under IRC 6721 than to comply."
Volume itself is evidence
"The greater the number of failures, the greater the likelihood some of those failures could be due to intentional disregard" (IRM 20.1.7.8.2(3), citing Treas. Reg. 301.6721-1(g)(3)(i)). A pattern of failures is a regulatory indicator. That puts a high-volume payer with a persistent error rate at structural risk with no bad intent at all, and it is the reason the examiner is told to look at whether the error rate fell from one year to the next (see below).
The cost-of-compliance memo
The fourth question is the one that surprises people. If the cost of compliance exceeded the penalty and the payer chose the penalty, that is intentional disregard by the manual's definition. Any internal document that says so, a budget note declining a TIN-matching subscription "because the 972CG is cheaper," an email deferring the W-9 cleanup to next year, a board slide comparing the penalty to the cost of a filing service, is precisely the evidence the examiner is instructed to look for. Write the decision the other way: what was done to comply, when, and at what cost.
Never put in writing that the penalty is cheaper than the fix. The IRM defines that sentence as intentional disregard.
The uncapped formula for paper filing
For returns filed on paper when e-filing was required, the manual gives a five-step computation (IRM 20.1.7.8.2(6)): average the amounts reported on the wrongly paper-filed returns; multiply by the number of returns above the e-file threshold; take 10% of that (5% for the broker-type returns listed in IRC 6721(e)(2)(B)); separately multiply the same count by the per-return intentional-disregard rate; assess the greater. There is no annual maximum.
The IRS assesses the greater, $312,000, uncapped. The same 390 returns under the tiered penalty would be 390 x $340 = $132,600, and capped for a small filer at $1,366,000 in any case.
For a payer reporting large amounts (gross proceeds, rents, settlement payments) the 10% alternative can dwarf the per-return rate. Paper filing with knowledge of the threshold is the fact pattern the formula was built for.
Payee statements: 10% of the income
The IRC 6722 intentional-disregard penalty for payee statements is computed separately: 10% of the aggregate amount of the items required to be reported (5% for brokers and the other 6722(e)(2)(B) returns), with no maximum, and it can be assessed on the same form as the 6721 penalty (IRM 20.1.7.9.2, 20.1.7.3.3). A composite statement covering several payment types is treated as one statement per payment type, each subject to the penalty (IRM 20.1.7.9(4)).
How a repeat 972CG gets there
Intentional disregard usually arrives by the compliance-history route rather than by a memo. The handbook says a filer "can not continually rely on the same explanation to establish reasonable cause when the filer's compliance history indicates a pattern of failures," directs the examiner to check whether the error rate decreased from the prior year, and, where it did not, to "consider the intentional disregard provisions" (IRM 20.1.7.12.1(12) to (13)). The second-year 972CG for the same TIN problem is the point at which the tiered penalty can become the uncapped one. The next-year guide covers how to document the improvement.
What the record should show
- Dated evidence of when the failure was discovered and what was done within 30 days.
- Correction within 30 days of any IRS letter, with the filing acknowledgment.
- A written compliance decision that shows cost was incurred to comply: the TIN-matching subscription, the vendor onboarding change, the filing service engagement, each with a date.
- Year-over-year counts: returns filed, returns with failures, and the rate, showing a decline.
- For e-filing: the TCC application date, or the two hardship quotes, showing an attempt to comply rather than a decision not to.
Questions people ask
Does the 972CG ever propose intentional disregard automatically?
The current-year 972CG program in IRM 4.19.25 handles the tiered penalties; it contains no intentional-disregard criteria or code. Intentional disregard is applied by an examiner on the facts, typically on a repeat case or a field referral (IRM 20.1.7.8.2).
Is intentional disregard waivable for reasonable cause?
By definition, no: reasonable cause requires that the failure was not due to willful neglect, and intentional disregard is a finding of willfulness. The defense is to show the facts do not meet the three elements, which is why the record above matters.
We deliberately filed late because the data was not ready. Is that intentional?
Choosing to file late and then filing is different from consciously choosing not to file. But the second question, whether you corrected within 30 days of IRS notification, and the third, whether you avoided an administrative inconvenience, both bear on it. An extension request on Form 8809, even a denied one, is evidence of an attempt to comply.