Key point. The tax code imposes penalties on employers, including churches, that fail to issue information returns (i.e., W-2, 1099) to employees and contractors, and these penalties are significantly increased if the failure is willful.

The United States Tax Court ruled that the Internal Revenue Service acted properly in assessing penalties against a church for intentionally refusing to issue W-2 forms to its employees. Section 6721(a) of the tax code imposes a penalty on employers for failure to file correct W-2 and other information returns. This penalty applies when an employer required to file an information return neglects to file it on time or fails to include within all information required to be shown. For the tax years involved in this case the penalty was $100 for each return with respect to which such failure occurred. However, if an employer intentionally disregards the filing requirement for Form W-2 and other information returns, the penalty significantly increases.