Section 6721 provides the IRS with authority to impose civil penalties against taxpayer-employers who fail to timely file correct information returns (e.g., Forms W-2/W-3 and Forms 940/941). Under section 6721’s three-tiered penalty structure, the penalty varies, depending primarily on when the correct information return is eventually filed and, in some cases, the size of the employer. However, if the IRS can show that the failure to timely and properly file an information return was due to “intentional disregard,” the IRS is permitted under section 6721(e) to impose a penalty of 10% “of the aggregate amount of the items required to be reported correctly.” Thus, for example, if a taxpayer-employer improperly files an incorrect Form W-3 where gross wages should have been reported as $500,000 for the year, the IRS can impose a section 6721(e) penalty in the amount of $50,000 against the taxpayer-employer.
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