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Penalties for Non-Compliance in the Context of Form W-9

Form W-9, "Request for Taxpayer Identification Number and Certification," is a critical document used by U.S. persons (including resident aliens) to provide their correct Taxpayer Identification Number (TIN) to entities that will report various types of income to the IRS. Non-compliance with the requirements of Form W-9 can lead to several penalties. Here is a detailed and comprehensive overview of these penalties:

1. Failure to Furnish a Correct TIN​

If a taxpayer fails to provide a correct TIN to the requester, they are subject to a penalty of $50 for each such failure. This penalty can be waived if the taxpayer can demonstrate that the failure was due to reasonable cause and not willful neglect (Tax Bandits, Efile360).

Example:​

  • Scenario: A contractor fails to provide their correct TIN on Form W-9 to a client.
  • Penalty: $50 per instance unless reasonable cause is shown.

2. Providing False Information​

If a taxpayer makes a false statement with no reasonable basis that results in no backup withholding, they are subject to a penalty of $500. This penalty is intended to deter taxpayers from providing incorrect information that could lead to underreporting of income (Basis365, TurboTax).

Example:​

  • Scenario: A freelancer falsely certifies on Form W-9 that they are not subject to backup withholding.
  • Penalty: $500 for the false statement.

3. Criminal Penalties for Falsifying Information​

Willfully falsifying any information or affirmations on Form W-9 can lead to criminal penalties, including fines and/or imprisonment. This is a severe penalty aimed at preventing fraudulent activities (Tax Bandits, Efile360).

Example:​

  • Scenario: An individual intentionally provides a fake TIN on Form W-9.
  • Penalty: Potential fines and imprisonment.

4. Backup Withholding​

If a taxpayer fails to provide a correct TIN or if the IRS notifies the payer that the TIN is incorrect, the payer must begin backup withholding at a rate of 24% on reportable payments. This ensures that taxes are collected on income that might otherwise go unreported (IRS, Investopedia).

Example:​

  • Scenario: A vendor does not provide a TIN on Form W-9.
  • Action: The payer must withhold 24% of any payments made to the vendor.

5. Penalties for Requesters​

Requesters (payers) also face penalties if they fail to comply with the requirements related to Form W-9:

a. Failure to Obtain Form W-9​

If a payer fails to obtain a Form W-9 from a payee, they may be subject to penalties for failing to file correct information returns (e.g., Form 1099). The penalties vary based on the size of the business and the timing of the correction (IRS, Tax Bandits).

Example:​

  • Scenario: A business does not collect Form W-9 from a contractor and fails to file Form 1099-NEC.
  • Penalty: Penalties range from $60 to $630 per form, depending on the lateness and size of the business.

b. Failure to Furnish Correct Payee Statements​

If a payer fails to provide correct payee statements (e.g., Form 1099) by the due date, they may be subject to penalties. The penalty amounts are based on when the correct statement is furnished (IRS, Tax Bandits).

Example:​

  • Scenario: A business provides incorrect Form 1099-NEC to a contractor.
  • Penalty: Penalties range from $60 to $630 per form, depending on the lateness and size of the business.

6. Intentional Disregard​

If a business intentionally disregards the requirement to provide a correct Form W-9 or to file correct information returns, the penalties are significantly higher. For example, the penalty for intentional disregard of filing requirements is $630 per form with no maximum limit (IRS, Tax Bandits).

Example:​

  • Scenario: A business knowingly fails to file Form 1099-NEC for multiple contractors.
  • Penalty: $630 per form with no maximum limit.

7. Civil Damages for Fraudulent Filing​

If a payer willfully files a fraudulent information return (e.g., Form 1099) for payments they claim to have made to another person, that person may sue for damages. The payer may have to pay $5,000 or more in civil damages (IRS, Tax Bandits).

Example:​

  • Scenario: A business files a fraudulent Form 1099-NEC for a non-existent contractor.
  • Penalty: Potential civil damages of $5,000 or more.

Conclusion​

Non-compliance with Form W-9 requirements can lead to significant penalties for both payees and payers. These penalties are designed to ensure accurate tax reporting and compliance with IRS regulations. By understanding and adhering to the requirements of Form W-9, taxpayers and businesses can avoid these costly penalties and ensure proper tax reporting.

Tips for Compliance with Form W-9​

Ensure Accurate TIN
  • Always provide a correct TIN on Form W-9 to avoid penalties.
  • Verify that the TIN and name combination matches IRS records.
Avoid False Statements
  • Do not provide false information or certifications on Form W-9.
  • Ensure all information provided is accurate and truthful to avoid severe penalties.

References​