Unbeknownst to many issuers of 1099 and other information returns, Form 15397 Application for Extension of Time to Furnish Recipient Statements was debuted by the IRS in November 2023 and was required to be submitted by filers requesting an extension of time (EOT) for 2023 recipient statements.
However, the IRS did not communicate the changes to the EOT process to the industry and most issuers likely continued to follow the legacy process.
Conflicts in IRS instructions for 2023 and 2024
Recipient statements are due to be issued on a variety of deadlines spanning from January through May depending on the type of statement. Failure to issue an information return to the recipient by the due date can result in a penalty being assessed to the issuer per Internal Revenue Code § 6722 Failure to furnish correct payee statements.
When an issuer needs to file an EOT to issue recipient statements by the due date, the 2024 General Instructions for Certain Information Returns publication currently indicates that the issuer should fax a letter to the IRS and that include specific information including –
(a) payer name,
(b) payer TIN,
(c) payer address,
(d) type of return,
(e) a statement that the EOT is for providing statements to recipients,
(f) the reason for the delay, and
(g) the signature of the payer or authorized agent.
This process of sending a written letter to the IRS was also reflected in the 2023 version of this General Instructions publication.
Separately, in November 2023 the IRS released the brand-new Form 15397 – Application for Extension of Time to Furnish Recipient Statements which requires issuers to utilize the form to make the request rather than the written letter. Use of this form limits an issuer’s ability to request the extension of time unless one of the following events has occurred:
1) the transmitter suffered a catastrophic event,
2) Fire, natural disaster,
3) death or serious illness of individual responsible for filing,
4) transmitter was in first year of establishment,
5) transmitter did not receive data on K-1, 1042-S, or sick pay statement required under 31.6051- 3(a)(1) in time to prepare an accurate information return.
For 2023, issuers that needed to file an EOT to send recipient statements likely followed the written letter process for requesting the extension. The IRS neither updated the General Instructions Publication nor the online resource Topic no. 803 Electronic filing waivers and exemptions and filing extensions with information or instruction about the use of the new form.
Hopefully, the IRS will accept written requests that comply with the process details outlined in the General Instructions publication in lieu of Form 15397 given the conflicts that exist(ed) in published information.
Preparing for 2024 season
Limiting options for requesting an EOT will ensure that most recipient statements are issued by the statutory due date, which increases taxpayer compliance in the annual income tax return process.
However, in some cases it may accelerate the issuance of erroneous statements and increase the volume of corrected statements. For instance, there are other scenarios in which an issuer may not have all the data in time to prepare an accurate return in addition to the available options on the current version of Form 15397. This means the issuer will likely issue incorrect statements to the recipient to meet the statutory deadline, only to turn around and issue corrected versions within a subsequent 30-day period.
In the coming weeks, the IRS will likely update the 2024 General Instructions Publication to reflect the details of the new process. Issuers should generally be prepared to issue recipients statements by the required due date for the information return they are issuing, unless one of the applicable reasons on the new Form 15397 exists.
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Watch our recent webinar “Navigating Tax Year 2023’s Most Impactful Regulatory Updates” to learn more about combatting new regulations for reporting season.
