Lorain County in Ohio recently paid hundreds of thousands of dollars to the IRS as penalty for 1099 forms that weren’t filed in 2011. The Chronicle Telegram reported that the county failed to send the documentation to vendors, resulting in a $246,376 settlement.
Back in October 2013, when the source first reported on the IRS audit, it was estimated that the fines and penalties would only amount to $210,000, though the IRS expected liability of as much as $775,631. At the time, Ron Mantini, Lorain city auditor, had hoped the city would be able to negotiate a lower amount.
Since payment was made, Mantini said that there’s a chance that some of the money can be recovered if the appropriate vendors are given the necessary tax information and it is sent to the IRS. Of the total settlement, $30,400 was for fines for 152 forms that weren’t sent out – $200 per form. That portion won’t be recoverable. Furthermore, there was a fine of $170,267, which is 28 percent of the total amount that should have been reflected on the 1099 forms.
Many of the problems stemmed from the Lorain Municipal Clerk of Courts office, which didn’t send out the appropriate forms to several law firms. Mantini noted that efforts are already underway to get in contact with vendors and ensure tax compliance in the future.
The situation in Lorain County indicates how important it is to properly meet 1099 reporting obligations, as three years later, the county is paying for those mistakes. While some of the penalties may be recovered, businesses and companies should consider seeking out a third-party tax information reporting vendor to prevent “B” notices and penalties.
