What are the consequences of failing to provide W-2 filing proof when requested by the IRS?
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Failing to provide proof of W-2 filing when requested by the IRS can have several significant consequences, primarily centered around the imposition of penalties for noncompliance with information reporting requirements. Here’s a detailed breakdown of the legal and procedural consequences, with references to the relevant statutes and IRS guidance:
1. Penalties for Failure to File Correct Information Returns
Under Internal Revenue Code (IRC) §6721, employers are required to file correct information returns (such as Forms W-2) by the due date. If you fail to file, or cannot provide proof that you filed when requested by the IRS, you may be subject to penalties. The penalty applies if you:- Fail to file timely,- Fail to include all required information,- Include incorrect information,- File on paper when required to e-file,- Report an incorrect TIN,- Fail to report a TIN, or- File paper forms that are not machine readable.
The amount of the penalty depends on when the correct Form W-2 is filed:- $60 per Form W-2 if filed within 30 days after the due date (max $683,000 per year, or $239,000 for small businesses),- $130 per Form W-2 if filed more than 30 days after the due date but by August 1 (max $2,049,000 per year, or $683,000 for small businesses),- $340 per Form W-2 if filed after August 1, or not filed at all (max $4,098,500 per year, or $1,366,000 for small businesses).
If you cannot provide proof of filing, the IRS may presume you did not file, and the maximum penalty may be assessed.
2. Penalties for Failure to Furnish Correct Payee Statements
IRC §6722 imposes a separate penalty for failing to furnish correct payee statements (i.e., providing employees with their W-2s). If you cannot prove that you furnished W-2s to employees, you may be subject to a penalty of $60, $130, or $340 per statement, depending on how late the correct statement is furnished, with the same annual maximums as above.
3. Penalties for Intentional Disregard
If the IRS determines that your failure to file or furnish W-2s (or to provide proof thereof) was due to intentional disregard of the requirements, the penalty increases to at least $680 per W-2, with no maximum limit.
4. Reasonable Cause Exception
You may avoid penalties if you can show that the failure was due to reasonable cause and not willful neglect. To establish reasonable cause, you must show that you acted in a responsible manner both before and after the failure occurred, and that the failure was due to significant mitigating factors or events beyond your control. However, if you cannot provide proof of filing, it will be difficult to demonstrate that you acted responsibly.
5. IRS Requests and Notices
If the IRS requests proof of W-2 filing (for example, in response to a discrepancy or as part of an audit), and you cannot provide it, the IRS may issue a Notice 972CG (Notice of Proposed Civil Penalty) proposing penalties under IRC §6721. You have a limited time (typically 45 days) to respond and provide evidence or explanation. Failure to respond or provide proof will result in assessment of the penalty.
6. Recordkeeping Requirements
Employers are required to keep copies of Forms W-2, W-3, and related employment tax records for at least four years. Failure to maintain these records can itself be considered a violation and may further support the IRS’s imposition of penalties.
7. Additional Consequences
- The IRS may disallow deductions for wages paid if you cannot substantiate that you filed required information returns.
- Repeated or egregious failures may result in further scrutiny, audits, or criminal investigation in cases of fraud.
Summary: If you fail to provide proof of W-2 filing when requested by the IRS, you are at risk of substantial penalties under IRC §§6721 and 6722, with higher penalties for intentional disregard. You may also face additional consequences such as disallowed deductions and increased IRS scrutiny. Maintaining proper records and being able to substantiate timely and correct filing is essential to avoid these outcomes.
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