The penalties next to your 1099s that reasonable cause cannot remove

No First Time Abate, no oral requests

IRM 20.1.10 covers the civil penalties without a chapter of their own, and it opens with two rules for all of them: the first-time abate policy "does not apply to the penalties in this IRM" (IRM 20.1.10.2.2(3), Aug. 12, 2026), and "Oral testimony does not apply to the penalties in this IRM" (IRM 20.1.10.2.5, Apr. 26, 2018).

The penalties at a glance

IRC 6682 falls on the individual who signed the certification, not on the payer that relied on it (IRM 20.1.10.10). IRC 6657 is assessed by campus accounting from the dishonored-payment transaction (IRM 20.1.10.7.2(1)), so the Form 8278 steps below do not apply to it.

IRC 6705: the broker's 15-day notice

A broker acquiring a readily tradable instrument for a customer "must notify the payor of such instrument within 15 days of the acquisition that the payee is subject to backup withholding if" the payee gave no TIN, the IRS said the TIN is incorrect, the payee has not certified that it is not subject, or the IRS told the broker before the acquisition that the payee is subject (IRM 20.1.10.13(2), Aug. 12, 2026). The notice may go by "magnetic (electronic) media, machine readable document, or any other medium" if it carries the payee's name, address and TIN, which IRC 3406(a)(1) condition applies and, where relevant, that the IRS notified the broker; it travels with the transfer or account-registration instructions. "Once the broker transmits the transfer instructions containing the required information, the broker has no further responsibility," and "Upon receiving the notice from a broker, the payor must impose withholding on the account" (IRM 20.1.10.13(3)-(4)). "Broker" includes a dealer, a barter exchange and "any other person who regularly acts as a middleman for property or services (for pay)" (IRM 20.1.10.13(5)). $500 per willful failure, PRN 632 (IRM 20.1.10.13.1, 20.1.10.13.2). The manual is silent on the payor's own IRC 3406 liability when the notice never arrives. The notice template carries the required elements and a payor acknowledgment.

IRC 6674 and 6682: the willful W-2 and the false W-9

IRC 6674 reaches anyone required to furnish a W-2 or tip statement "who willfully furnishes a false or fraudulent statement or willfully fails to furnish a statement": $50 per failure, PRN 575, on Form 8278 (IRM 20.1.10.9, 20.1.10.9.2, Oct. 12, 2022). "When firm indications of willful failure ... are discovered, the investigating office will suspend the inquiry and refer the matter to the Criminal Investigation function." The 1099 payee-statement penalty is IRC 6722, in another chapter.

IRC 6682 is the weight behind the Form W-9 jurat: a penalty on "any individual who makes a statement under IRC 3402 ... or IRC 3406, Backup Withholding, that results in a decrease in the amounts deducted and withheld ... if it had no reasonable basis at the time the statement was made" (IRM 20.1.10.10(1), Oct. 12, 2022). $500 per false statement, PRN 616, Form 8278 (IRM 20.1.10.10.1, 20.1.10.10.2). Two exits: "reasonable basis for the statement at the time," and a waiver "if the individual's taxes for that year are equal to or less than the sum of the: Allowable credits ... and Estimated tax payments" (IRM 20.1.10.10.2(2), 20.1.10.10.3). A payer's solicitation letters may cite it; the manual describes no payer role.

IRC 6652(a) and 6652(l): sub-$10 statements and Form 8806

A dividend or patronage dividend under $10 needs a statement for one reason: "Treas. Reg 1.6042-2 limits the filing requirement for payments less than $10 to shareholders subject to backup withholding requirements under IRC 3406," with the same rule for cooperatives (IRM 20.1.10.6.1(2)-(3), Aug. 12, 2026). $1 per statement, $1,000 per calendar year, PRN 590, Form 8278, reasonable cause available (IRM 20.1.10.6.1.1 to 6.1.3). It does not apply to payments to foreign corporations or nonresident aliens (IRM 20.1.10.6.1(7)); a paragraph of the assertion criteria is redacted.

Form 8806 is due "on or before the 45th day following the acquisition of control or substantial change in capital structure ... or, if earlier, on or before January 5th of the year following"; shareholders receiving $1,000 or less are exempt; and "Failure to file also includes the failure to satisfy the requirement to file on magnetic media" (IRM 20.1.10.6.5(3)-(12), Aug. 12, 2026). The penalty is not per return: the Form 8806 "and all Forms 1099-CAP required to be filed will be considered as one return for penalty computation," at $500 per day up to $100,000, PRN 649, "systemically assessable," reasonable cause available (IRM 20.1.10.6.5.1, Oct. 12, 2022; 20.1.10.6.5.2, Nov. 18, 2019).

IRC 6657: the dishonored EFTPS deposit

Since July 2, 2010 the dishonored-check penalty covers "any 'instrument in payment, by any commercially acceptable means,'" including "EFTPS payments and deposits" (IRM 20.1.10.7(2), Nov. 18, 2019). A returned Form 945 or 1042 deposit draws 2% of the payment if $1,250 or more, $25 if $25 to $1,249.99, and the payment amount if $5 to $24.99 (IRM 20.1.10.7.1(1)); three notes and a reminder there are redacted. Relief needs paper: "Oral testimony to that effect will not be accepted. The first time abate (FTA) administrative waiver does not apply." "A bank letter is required if the reason is bank error" (IRM 20.1.10.7.3, Aug. 20, 2024). Reason codes: bank error PRC 017; EFTPS or Treasury Financial Agent error PRC 032; a stop payment mis-coded as dishonored PRC 045 or 017; erroneous IRS advice PRC 044 (IRM 20.1.10.7.4, Oct. 12, 2022). Letter 608-C asks for information; Letter 854-C denies. The IRC 6657 calculator applies the tiers and names the route.

The Form 8278 path: no 30-day letter, CP 215 first

Assessable penalties are "paid upon notice and demand. For assessable penalties, there is no 30-day letter, no agreement form, and no notice requirements prior to assessment" (IRM 20.1.9.1.5(2), Jan. 29, 2021). A payer used to the 972CG proposal stage should expect none here; the first document may be the CP 215 on MFT 13, which opens "We charged you a penalty under section", shows a balance table, and on page two tells the taxpayer "what to do if his or her refund claim has been pending for more than six months" (IRM 20.1.9.1.5(15); Exhibit 20.1.9-7). "The taxpayer's signature is not required" (IRM 20.1.9.2.2(5)).

Supervisory approval is the check a payer can test: "both the originator and supervisor sign and date each page of the form on which penalties are proposed," or the file goes back on Form 3210 (IRM 20.1.10.2(9), Aug. 12, 2026). The exception for penalties "automatically calculated through electronic means" ends once "an IRS employee considers the response prior to assessment"; then "written supervisory approval under IRC 6751(b)(1), is required" (IRM 20.1.10.2(7)). After assessment, "Appeals currently provides a prepayment, post assessment appeal process" under IRM 8.11.5, opened by the "taxpayer's written request for appeal of penalties" (IRM 20.1.9.1.5(5), 20.1.9.2.3). Only the assessing unit can abate; "Collection personnel do not have delegated authority" (IRM 20.1.9.2.4).

Two statutes

For the miscellaneous penalties, "To the extent such an item pertains to an information return, the assessment is not subject to the period of limitation in IRC 6501; however, discretion should be used when determining the periods on which information return penalties are assessed" (IRM 20.1.10.2.2(1), Aug. 12, 2026). For international information returns, penalties "generally must be assessed within three years after the return was filed," and under IRC 6501(c)(8) an incomplete return holds the period open until three years after the missing information arrives (IRM 20.1.9.1.5(3), Jan. 29, 2021). A payer assuming a three-year horizon on a 1099-adjacent penalty has the manual against it.

The international reasonable-cause standard

Where reasonable cause is available, requests "should contain a declaration that it is made under the penalties of perjury" (IRM 20.1.9.1.5(4)). "The fact that reasonable cause relief was granted to the related income tax return does not automatically provide relief for the failure to timely file the information returns." Examiners are "encouraged to ensure the taxpayer is in full compliance ... prior to considering reasonable cause on any one year," and "A taxpayer's testimony that records were not available year after year has no merit" (IRM 20.1.9.2(15)). Put the perjury declaration in every statement and file every open year before asking.

Where the 1042-S penalties are not

IRM 20.1.9 has no procedure for a late or incorrect Form 1042-S. Its only Form 1042 content says withholding under IRC 1441, 1442 and 1446 is "subject to failure to deposit penalties as discussed in IRM 20.1.4," and its exhibit lists Forms 1042 and 1042-S with "Refer to IRM 4.10.21" (IRM 20.1.9.25(3); Exhibit 20.1.9-2, Jan. 29, 2021). See the foreign-vendor exam guide and the Form 1042 deposit calculator.

Questions people ask