Section 6050AA Compliance: What Auto Lenders Must File With the IRS Starting in 2026

If you make auto loans and collect interest from individual borrowers, you now have a federal reporting obligation most lenders have never faced before. Section 6050AA of the Internal Revenue Code - added by the One Big Beautiful Bill Act (OBBBA) on July 4, 2025 - requires you to report that interest to the IRS and give each borrower a written statement every year.

The rule covers loans originated after December 31, 2024. The first full-compliance filing season is here, in 2026.

I know this because the IRS framed Section 6050AA explicitly as the vehicle-loan equivalent of the longstanding mortgage interest reporting system under Section 6050H. The framework is familiar. The obligation, for auto lenders, is brand new.

Understanding your Section 6050AA reporting requirements isn't optional. The IRS tied real penalties to this rule under IRC 6721 and 6722.

A $600-per-loan threshold is the only floor between you and the filing obligation. This guide covers what the rule requires, which lenders it covers, how the threshold works, what the penalty structure looks like, how 2025 transitional relief differed from 2026 full compliance, and how to file through IRS IRIS.

For a broader look at how the IRS handles car loan interest reporting, see our IRS car loan interest reporting guide. For a form-level walkthrough, start with our Form 1098-VLI explained overview.

What Section 6050AA Requires

Section 6050AA creates two obligations that run in parallel.

You must file an information return with the IRS for each covered loan. You must also furnish a written statement to the borrower. Both must show the total interest you received on that loan during the calendar year.

The IRS designed this system to mirror mortgage interest reporting under Section 6050H. Borrowers who pay interest on a qualifying passenger vehicle loan can deduct up to $10,000 of that interest on their federal return for tax years 2025 through 2028 - but only if their lender provides accurate numbers. Your reporting is what makes the borrower's deduction possible.

The vehicle must qualify as a specified passenger vehicle loan (SPVL) - a loan secured by a passenger vehicle assembled in the United States, used for personal purposes, incurred after December 31, 2024.

The IRS form that satisfies both obligations is Form 1098-VLI, the Vehicle Loan Interest Statement. You file one form per loan, not one per borrower. If a borrower has three qualifying loans with you, that's three separate 1098-VLI returns.

Which Lenders Must File Under Section 6050AA

The rule reaches any person who receives interest on an SPVL in the course of a trade or business from an individual. That definition is intentionally wide.

• Banks and credit unions - Any depository institution that originates auto loans for personal vehicles is covered from the first qualifying loan.
• Finance companies - Standalone auto finance companies, including captive lenders tied to manufacturers, fall squarely within Section 6050AA.
• Dealers who provide direct financing - If a dealer finances a buyer directly and holds that paper - rather than assigning it to a lender - the dealer is the interest recipient and must file.
• Loan servicers - A servicer that collects interest on behalf of another party is still a recipient under the statute and must file, even if the servicer doesn't own the loan.
• Foreign lenders with U.S. connections - Non-U.S. persons who receive SPVL interest in the United States, or controlled foreign corporations, are also covered under specific conditions in the Form 1098-VLI instructions.

The rule doesn't exclude small lenders, community banks, or credit unions based on asset size. If the loan qualifies and the interest reaches $600, the obligation follows.

The $600 Threshold: How It Works Per Loan

The $600 threshold applies separately to each SPVL. Not to the borrower's total interest across all their loans with you.

The IRS instructions for Form 1098-VLI are direct on this point: you are not required to file a return for a single loan where you received less than $600 in interest, even if that same individual paid you more than $600 across multiple loans.

Run the test loan by loan. Not borrower by borrower.

For most auto loans with balances above $10,000 and rates above 5%, reaching $600 in annual interest is common. A $20,000 loan at 7% generates roughly $1,400 in first-year interest - well above the floor. Shorter-term loans, lower balances, or loans originated late in the year may fall below $600 for that calendar year but could cross the threshold the next year.

Two practical notes on the threshold:

• Prepayment penalties count as interest under IRS rules and get added to Box 1 of Form 1098-VLI.
• Pre-2025 loans are excluded. If you originated a loan before January 1, 2025, that interest falls outside 6050AA's scope - regardless of when it's paid.

Penalty Table: IRC 6721 and 6722

Sections 6721 and 6722 are the enforcement mechanism behind Section 6050AA compliance failures.

Section 6721 covers the failure to file a correct information return with the IRS. Section 6722 covers the failure to furnish a correct payee statement to the borrower. Both can apply to the same reporting failure - one penalty for the IRS side, a separate one for the borrower side.

The OBBBA explicitly added 6050AA returns to the definitions of "information return" and "payee statement" in Section 6724(d). Both penalty sets apply directly to auto lender reporting failures starting with tax year 2025.

Here is the current penalty structure for larger businesses (average annual gross receipts over $5 million):

Smaller businesses - those with gross receipts of $5 million or less - have lower per-return penalties and lower annual caps, but the tiered structure is the same.

The IRS can waive penalties for reasonable cause where a lender shows it acted responsibly and the failure wasn't due to willful neglect. Intentional disregard penalties carry no annual cap and can also equal 10% of the aggregate amount required to be reported, whichever is greater.

The math matters. A portfolio of 10,000 qualifying loans where statements go out late or contain errors could reach $3 million in IRC 6721 penalties alone - and equal exposure under 6722 for the borrower statement failures.

2025 Transitional Relief vs. 2026 Full Compliance

The IRS recognized that Section 6050AA was brand new. Neither the agency nor lenders had the systems, forms, or electronic filing specifications ready when the OBBBA passed in July 2025. Notice 2025-57, released October 21, 2025, gave the industry a simplified path for that first year.

What transitional relief allowed for 2025:

• No formal Form 1098-VLI required for the 2025 tax year.
• Lenders satisfied their Section 6050AA obligations by making a statement available to the borrower by January 31, 2026, showing the total interest received in calendar year 2025 on each SPVL.
• Delivery could happen through an online account portal, a monthly or annual statement, or any other accessible and accurate method.
• The IRS confirmed it would not impose Section 6721 or 6722 penalties on any lender that used this approach for 2025.
• Lenders were not required to file a return with the IRS for 2025 - only to furnish the statement to borrowers.

What 2026 full compliance requires:

• The simplified statement option is gone. Lenders must use official Form 1098-VLI for every SPVL where 2026 interest reaches or exceeds $600.
• The IRS filing copy is due March 31, 2027, if e-filing (earlier for paper filers).
• The borrower statement (Copy B) must be furnished by January 31, 2027 - before the IRS filing deadline.
• Penalties under IRC 6721 and 6722 apply in full to any 2026 Section 6050AA reporting failures.

The gap between 2025 and 2026 is significant. Lenders who used their online portal or monthly statements to satisfy 2025 relief cannot carry that approach into 2026. The form is now the required vehicle.

One more shift: the FIRE system - the older electronic filing platform - is being retired. Beginning with filing season 2027 (for 2026 returns), IRIS is the only system for information return submissions. Lenders filing 2026 1098-VLI returns need to be registered in IRIS now.

Filing Through IRS IRIS: Step by Step

IRIS - the Information Returns Intake System - is the IRS's free online portal for electronic information return filing. Available at IRS.gov/IRIS, it works for any business regardless of size. For 2026 Form 1098-VLI filings, it's the primary route.

Here is how the process works:

1. Get your Transmitter Control Code (TCC). You need a TCC before filing through IRIS. Applications take approximately 45 business days to process. If you haven't applied, start now. Delay has a real cost heading into filing season.

2. Gather loan-level data. For each SPVL where 2026 interest reached $600 or more, collect the borrower's name, address, and TIN (typically their Social Security number); the VIN, vehicle year, make, and model; total interest received for the year; and the loan origination date. The TIN must match IRS records. Name and TIN mismatches generate notices after filing and create problems for both the lender and the borrower.

3. Choose your entry method. IRIS lets you key records directly into the Taxpayer Portal or upload a file using a downloadable template. High-volume filers use the IRIS Application-to-Application (A2A) system, governed by IRS Publication 5718.

4. File by the deadline. For tax year 2026, e-filed Form 1098-VLI is due March 31, 2027. Any lender filing 10 or more combined information returns in a year must file electronically. Paper filing above that threshold is itself a penalty trigger under IRC 6721.

5. Furnish Copy B to borrowers by January 31. The borrower statement deadline falls before the IRS filing deadline. Copy B is available as a fillable online PDF at IRS.gov/Form1098VLI for lenders with smaller borrower groups to notify.

Get registered in IRIS if you haven't made the switch. The FIRE system shuts down for this filing season, and there's no alternative path.

For a detailed look at what goes in each box, see our Form 1098-VLI line-by-line guide.

Section 6050AA Compliance FAQ

Does Section 6050AA apply to loans made before January 1, 2025?

No. The OBBBA's vehicle loan interest deduction - and the Section 6050AA reporting obligation tied to it - covers only loans incurred after December 31, 2024. Interest on loans originated in 2024 or earlier is outside scope, even if that interest is still being paid in 2025 or 2026.

What if the borrower uses the vehicle for both business and personal purposes?

The deduction and the reporting requirement apply to personal use of a passenger vehicle. Proposed IRS regulations released in January 2026 address mixed-use vehicles.

Watch for final regulations that clarify how reporting works when a vehicle serves dual purposes. Until then, lenders report based on the loan's classification as a personal-use passenger vehicle loan.

What vehicles qualify as specified passenger vehicles?

A specified passenger vehicle is a passenger automobile with a final assembly point in the United States. The VIN connects the vehicle to its assembly location. Trucks and SUVs that meet the IRS definition of a passenger automobile and are assembled in the U.S. can also qualify.

Vehicles assembled entirely outside the U.S. are outside the rule. For a full breakdown of vehicle eligibility, see our Form 1098-VLI explained article.

Do I need to file a 1098-VLI if the borrower never claims the deduction?

Yes. Your Section 6050AA compliance obligation doesn't depend on whether the borrower uses the deduction. The statute requires reporting for any SPVL where you received $600 or more in interest, regardless of the borrower's individual tax situation.

Can a servicer rely on the lender to file, or must both file?

Under IRS rules, the interest recipient - the entity that actually receives the interest payment - is the one required to file. If you are a servicer collecting payments on behalf of a lender, you are treated as the recipient.

The loan owner who doesn't receive the interest directly is generally not the filer. Make sure your servicing agreements are clear about which party is responsible.

What if I make an error on a filed 1098-VLI?

File a corrected return through IRIS as soon as you find the error. The penalty tiers under IRC 6721 reward early correction - fixing an error within 30 days of the filing due date drops the per-return penalty from $340 to $60.

Document your correction process and the date you identified the error. That record supports a reasonable cause argument.

What Lenders Should Do Right Now

Section 6050AA is active. It applies to every qualifying auto loan in your portfolio right now, and the 2026 reporting season is underway. Here are the steps that matter most:

• Register for IRIS now if you haven't applied for a TCC. The 45-day processing window means delay has a real cost.
• Audit your loan data quality. TIN and name accuracy determines whether your 1098-VLI filings clear without IRS notices. Fix mismatches before you file.
• Map your SPVL portfolio. Identify all loans originated after December 31, 2024, track the interest received per loan, and flag every loan at or above the $600 threshold.
• Prepare borrowers for the form. Many have never received a 1098-VLI. A short explanation - via email, your online portal, or a FAQ page - reduces confusion and call volume when statements arrive.

If you want to understand how the deduction side works and what your borrowers will do with the information you send them, our IRS car loan interest reporting guide covers the full picture. When you're ready to set up your reporting system, get started here.