New penalties for taxpayers in the One Big Beautiful Bill Act

ARTICLE | August 04, 2025

Authored by RSM US LLP

Executive summary: Taxpayer penalties in the OBBBA

The One Big Beautiful Bill Act (OBBBA) introduces new penalty regimes that expand IRS enforcement authority and increase compliance risk for taxpayers. From employment tax refund claims to opportunity zone reporting and new Trump account rules, the penalties are, in some cases, broad, steep and/or immediate. This article breaks down what taxpayers need to know about these penalties.

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, introduces several significant penalty provisions. This article examines the following six, in particular, highlighting the corresponding requirements, maximum penalty amounts, potential defenses, and effective dates.

• Erroneous refund for employment taxes
• Increased penalties for employee retention credit promoters
• Opportunity zone return filing
• Energy credit certification
• Trump Account elections
• Failure to file vehicle loan interest returns

Erroneous refund penalties expanded to employment taxes

Maximum penalty: 20% of erroneous refund claimed, no maximum

Effective date: July 5, 2025

The OBBBA amends section 6676(a) by expanding the erroneous refund penalty from “income tax” to “income or employment tax.” This expansion broadens the IRS's penalty authority for employment tax matters and creates new exposure for taxpayers filing refund claims. This modification alters the penalty landscape for all employment tax refund claims filed after July 4, 2025.

Section 6676 imposes a 20% penalty on erroneous refunds claimed for an “excessive amount,” the amount by which the claim exceeds what is allowable under the Internal Revenue Code.

Previously limited to income tax returns, this penalty now applies to employment tax refund claims; however, this expansion only applies to claims for credit or refund after July 4, 2025. Therefore, it will not impact any previously filed claims for the employee retention credit (ERC or ERTC) or paid sick and family leave credit.

Employers who claim other credits on Forms 941, such as the research and development (R&D) credit for qualified small businesses or exempt organizations that claim work opportunity tax credits (WOTC) against employment taxes, could be subject to this penalty on excessive claims filed after the July 4, 2025, effective date.

The 20% penalty rate creates substantial exposure for employers. An erroneous $1 million employment tax refund claim could trigger a $200,000 penalty, separate from and in addition to any interest or other penalties. The penalty applies to the excessive portion of the claim, meaning even partial calculation errors can result in significant financial consequences.

Increased penalties for ERC promoters

Maximum penalty: $1,000 per failure

Effective date: For aid, assistance, and advice provided after date of enactment.

The OBBBA creates a new penalty regime for “COVID-ERTC promoters” who fail to comply with due diligence requirements. The statute imposes a $1,000 penalty for each failure to comply with due diligence requirements when providing aid, assistance or advice with respect to any COVID-ERTC document. These requirements are similar to those already imposed under section 6695(g) for earned income, child, and education credits.

The due diligence requirements apply to aid, assistance, and advice provided after July 4, 2025, meaning past services aren't directly affected, but ongoing engagements must immediately comply. Since most ERC engagements are complete at this point, this increased penalty provision will likely have minimal impact.

Opportunity zone return filing penalties

Maximum penalty: Up to $250,000

Effective date: Penalty will apply to taxable years beginning after the date of enactment

The OBBBA creates additional reporting requirements and penalties for qualified opportunity funds. The legislation amends sections 1400Z-1 and 1400Z-2 and makes the qualified opportunity zone (QOZ) program permanent before it expires on December 31, 2026.

The OBBBA also heavily increases qualified opportunity fund (QOF) reporting requirements and creates new reporting requirements for qualified opportunity zone businesses (QOZB). Finally, the legislation imposes a penalty for failing to comply with the new QOZ reporting requirements.

Under the Tax Cuts and Jobs Act (TCJA), a QOF was subject to a penalty only for failure to hold at least 90% of its assets in qualified opportunity zone property. While there is an existing responsibility to report QOF information on a Form 8996, there were no specific penalties for failure to supply this information. This has changed with passage of the OBBBA.

The OBBBA substantially increases information reporting obligations for QOFs and creates new information reporting obligations for QOZBs. The reporting requirements also apply to the newly designated qualified rural opportunity funds (QROF).

The legislation introduces new section 6039K, which requires QOFs and QROFs to file an information return containing detailed information, such as (but not limited to):

• The fund’s name, address and identification number
• Total asset valuation information
• The value of QOZ property held by the QOF
• Information related to the investments in QOZ stock or partnership interests
• The employment impact of the QOF
• Whether any person disposed of an investment in the QOF during the year

Additionally, section 6039K(c) requires every QOF to furnish an information return to persons who disposed of an investment in the QOF during the year.

The OBBBA also introduces a new code section, section 6039L, requiring an applicable QOZB (or qualified rural opportunity zone business (QROZB) as the case may be) to furnish information returns to the QOF that has an ownership interest in the QOZB or QROZB. This is so that the QOF can properly complete its own information reporting requirements under section 6039K.

Most notably, the OBBBA creates a new penalty for failure to comply with section 6039K reporting requirements. Under the new section 6726, failure to timely file a complete and correct return as required by section 6039K will result in a $500 per-day penalty, not to exceed $10,000.

However, large QOFs, defined as QOFs with gross assets in excess of $10,000,000, are subject to a maximum penalty of $50,000. If a QOF intentionally disregards the requirements of section 6039K, the daily penalty is increased to $2,500, with a maximum penalty of $250,000 for large QOFs.

Energy credit certification penalty

Maximum penalty: Greater of 10% of underpayment or $5,000

Effective date: Tax years beginning after date of enactment

Specifically for disallowed applicable energy credits, the OBBBA changes what is considered a substantial understatement for application of the 20% penalty under section 6662.

When the IRS disallows an applicable energy credit, the 20% penalty will kick in where the amount of understatement exceeds the greater of 1% of the tax required to be shown on the return or $5,000. This is different from the normal threshold of 10% of tax required to be shown for other general types of understatements.

This new penalty threshold applies to disallowances of section 45X, 45Y, and 48E credits by reason of overstating the material assistance cost ratio (as determined under 7701(a)(52) with respect to any qualified facility, energy storage technology, or facility that produces eligible components. The reasonable cause exception to the penalty may apply, according to section 6664.

Trump account penalties

Maximum penalty: $50 per missed form for section 6693 report filing requirement and up to $1,000 for fraudulent election

Effective date: Taxable years beginning after Dec. 31, 2025

The OBBBA creates a new type of individual retirement account for the exclusive benefit of an individual under age 18 called a Trump account. The act creates an account to which one can contribute up to $5,000 a year, adjusted for the cost of living. No distributions can be made before the beneficiary reaches age 18.

The OBBBA applies the existing section 6693 penalties for failure to provide reports on tax-favored accounts to the Trump accounts. This penalty, which applies to accounts similar to 529 accounts, is $50 for each failure. The penalty does not apply where there is reasonable cause. Deficiency procedures do not apply to this type of penalty.

A second type of penalty that applies to Trump accounts is the new section 6659 penalty for improper claim for Trump account contribution pilot program credit.

The OBBBA allows an individual to elect to treat their eligible child as making a $1,000 payment against tax. This is paid by the Treasury secretary to the Trump account to which such child is a beneficiary.

This is only available to children born after Dec. 31, 2024, and before Jan. 1, 2029, who are U.S. citizens and for whom no prior election was made. The new penalty applies to a taxpayer trying to get the $1,000 credit for someone who is not an eligible child.

If the election was made negligently or without regard to the rules, the penalty is $500. However, if a taxpayer fraudulently makes an election, they face a penalty of $1,000. The terms negligence and disregard have the same meaning as those in section 6662. Omission of a correct Social Security number will be treated as a math error. This goes into effect for taxable years beginning after Dec. 31, 2025.

Penalties for failure to file vehicle loan interest returns

Maximum penalty: $3,000,000

Effective date: Applies to indebtedness incurred after Dec. 31, 2024

In conjunction with the new vehicle loan interest deduction created by the OBBBA’s amendment to section 163(h), there is a corresponding requirement for recipients of that passenger vehicle loan interest to provide an informational return reporting on that interest.

The OBBBA adds section 6050AA to the Internal Revenue Code to require any person engaged in a trade or business who receives $600 or more in interest on a passenger vehicle loan to make a return for each individual from whom such interest is received.

This informational return must contain:

• The person’s name
• Amount of interest received for the year
• Amount of outstanding principal on the passenger vehicle loan
• Date of origination of the loan,
• Year, make, model, and vehicle identification number securing the loan

The recipient of the interest must furnish these statements to the individual whose name is required on the form by Jan. 31 of the following year. To this new type of informational return, the OBBBA applies existing section 6721 penalties for failing to file a correct information return.

The penalty for failure to file by the filing date or for any failure to include all required information is $250 per return, up to $3,000,000. If the returns are filed or corrected within 30 days of the due date, the penalty is only $50 per return, with a maximum of $500,000. If the failures are corrected by Aug. 1, the penalties are $100, with a maximum of $1,500,000. The penalty does not apply if there is reasonable cause and no willful neglect.

Please connect with your advisor if you have any questions about this article.