A government or governmental entity and certain nongovernmental entities that exercise self-regulatory powers must file a separate Form 1098-F, Fines, Penalties, and Other Amounts, with the IRS for each fine, penalty, or other amount in excess of an amount determined by the Secretary that is paid in relation to any violation of law or investigation into potential violation of law, pursuant to a court order or agreement.
Section 13306 of the Tax Cuts and Jobs Act prohibits individuals from deducting from their income taxes certain fines and/or restitution paid to government entities. According to the Internal Revenue Service (IRS), a municipality will also be required to file a 1098-F form with the IRS reporting any fine or restitution paid to the municipality of $600.00 or more. The IRS website summarized this new requirement on its website as follows:
Although many municipal fines will be fall under the threshold reporting amount, there will certainly be instances where a fine will trigger this new reporting requirement, meaning that municipalities should be ready to comply with this new requirement.
The regulation and form leave a lot of questions unanswered, particularly how municipalities can ensure that it can obtain the required information from the individual who paid the fine or restitution that is required for the form (i.e., social security number, etc). Maybe some of these will be answered when the IRS finalizes its regulations on this new requirement, although that may not be until the end of the year. Until then, municipalities should discuss and consider how they will collect, store, and protect the information required for these forms so they are ready to comply when the regulations are final.
You can get more information about the reporting requirement and view a draft of the 1098-F form on the IRS website here.
Post Authored by Megan Mack & Julie Tappendorf, Ancel Glink