Dealer Insights - January-February 2016 - Heads Up on Increased IRS Penalties, New CFPB Role
- Jan 28, 2016
Dealerships should be aware of a legislative development that will affect IRS penalties for the 2016 tax year as well as a new regulatory arrangement with the Consumer Financial Protection Bureau (CFPB) now in effect.
Trade Preferences Extension Acttax trap
There is one often-overlooked result of the Trade Preferences Extension Act of 2015 (TPEA) signed into law last summer: If your dealership fails to file information reporting returns with the IRS or provide accurate and timely statements to payees, you could be subject to higher penalties.
More specifically, the TPEA increases by up to 150% the potential penalties for businesses, including dealerships, that don’t file timely and accurate information returns or provide timely and accurate W-2 and 1099 statements to employees, contractors and vendors.
Increased penalties also apply if your dealership doesn’t file Forms 1094-C and 1095-C (if you’re an applicable large employer or “ALE”) or Forms 1094-B and 1095-B (if you’re not an ALE but are self-insured). These are new forms that are required for the first time in 2016 by the Affordable Care Act.
The new higher penalties are effective for most information returns and statements required to be filed after December 31, 2016. Short-term penalty relief is available for incorrect or incomplete information filings for Forms 1094-B, 1095-B, 1094-C and 1095-C if you can demonstrate that your dealership made a good-faith effort to comply with the new ACA information reporting requirements. Penalty relief isn’t available for failure to file or furnish payee statements.
CFPB oversight of nonbank auto financiers
The “cold war” between auto dealerships and the Consumer Financial Protection Bureau (CFPB) recently entered a new phase when it was announced that the agency will now oversee nonbank auto lenders’ and automakers’ captive finance units. This will bring 34 of the largest nonbank auto lenders under CFPB regulatory supervision, representing around 90% of the nonbank auto loan market. Previously, only large banks and credit unions with at least $10 billion in assets were under the CFPB’s oversight.
The agency will now monitor nonbank auto financiers in several ways. For example, it will look to ensure that the lenders are complying with rules that govern fair marketing and disclosures, require them to provide accurate information to credit bureaus, and strive to protect consumers from unfair debt collection tactics. It also will monitor whether or not nonbank auto financiers are following fair lending practices.
Compliance issues are weighing in more heavily at dealerships than in the past. Be aware of the stiffer penalties under TPEA — and of the CFPB’s expanded oversight — as you evaluate your compliance efforts this year.
Dealer Insights - January/February 2016
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