TIN Verification, B-Notices, and Backup Withholding: Best Practices
Webinar Details $219
- Webinar Date: June 28, 2023
- Webinar Time: 12:00pm - 1:40pm EDT live
- Webinar Length: 100 Minutes
- Guest Speaker: Chuck Borek
- Topic: Taxation and Accounting
- Credit: CPE 2.0, ATATX 1.5, IRS 2.0
Issuers of 1099 Forms can adopt best practices and procedures that streamline the year end process and provide assurance that 1099s are correct, at least so far as vendor names and TINs are concerned. While certain errors in reporting dollar amounts are considered “inconsequential” under new de minimis error rules, errors in the payee name or TIN are never considered inconsequential and can result in penalties.
Best practices to avoid errors and penalties include TIN solicitation, TIN verification, timely and appropriate response to IRS notices including issuing and follow up on B-Notices to payees, and procedures to implement and discontinue backup withholding as required.
The webinar will discuss the solicitation process including solicitation using and analyzing Form W-9, annual solicitations, B-notices and solicitations in response to IRS notices, and what to do when the vendor does not provide a TIN or provides an incorrect TIN.
It will cover how to register to use the IRS TIN verification service, how the system matches names and numbers and how this can help in preparing submissions to prevent false positive or negative responses from the system. It will cover how to submit TINs for verification and what to do when the system indicates a mismatch between the name and number of the vendor.
Procedures related to IRS notification of a name number mismatch or propose penalties for incorrect information returns are also covered including procedures the payer must follow in issuing B-Notices to payees.
The session will discuss establishment of procedures for proper administration of backup withholding.
- Reminders and what’s new
- IRS matching process
- Establishing reasonable cause
- TIN verification
- Backup withholding
- You will learn reminders and what's new
- You will learn the IRS matching process
- You will learn current penalty rates
- Information Report Example 00:02:39
- Tax Code Requirements (IRC 3406) 00:09:32
- What Payments Are Subject To Backup Withholding? 00:11:32
- What Payments Are Subject To Backup Withholding? Cont’d 00:13:07
- What is a Taxpayer Identification Number (TIN)? 00:14:14
- What is an Individual Taxpayer Identification Number (ITIN)? 00:15:43
- How Do You Obtain Someone’s TIN or ITIN? 00:20:06
- Exemptions From Backup Withholding 00:23:30
- Exemptions From Backup Withholding Con’d 00:24:36
- Exemptions From Backup Withholding Con’d 00:24:53
- Foreign Persons 00:28:53
- Should I Backup Withhold On A Payee Who is A Nonresident Alien? 00:30:12
- How Is Backup Withholding Reported? 00:32:07
- What Should I Do If A Payee Refuses or Neglects To Provide A TIN? 00:33:47
- What Is A CP2100 or CP2100A Notice? 00:35:35
- Solicitation requirement if CP2100 or CP2100A is Received 00:37:15
- What is a “B” Notice? 00:38:36
- “B” Notice Requirements 00:40:30
- First B-Notice Example 00:41:35
- Second B-Notice Example 00:43:13
- What If You Receive A Second CP2100 or CP2100A Notice In The Same Calendar Year As The First Notice? 00:47:16
- What Should You Do If A “B” Notice is Returned As “Undeliverable”? 00:48:10
- When Do I Send “B” Notice To A Payee? 00:49:06
- If you get a new TIN from a payee during the B Notice process, do you need to correct the Form 1099 filing that was issued?00:50:39
- What If The Payment You Made Was A One Time Payment And You Don’t Expect To Pay That Person Again? 00:51:36
- What Happens If You Don’t Comply With The B-Notice Procedure? 00:52:33
- Can The Penalties Be Abated? 00:56:24
- What Is The Relationship Between The Requirements To Make An Annual Solicitation and The Requirements To Send A “B” Notice? 00:59:33
- What Should I Do If A TIN Was Actually On File But Was Omitted From The Form 1099 or Reported Incorrectly? 01:00:21
- What Should I Do If This Is The First Notification And The Form W-9 is Returned With The Same Incorrect Information? 01:01:04
- If I Don’t Do Business Anymore With A Payee, Or If It Was Only A One Time Transaction, What Should I Do With The “B” Notice? 01:02:24
- When should you file a corrected 1099? 01:06:04
- Flowcharting for Incorrect Names/TINs 01:09:03
- Flowcharting for Incorrect Names/TINs Con’t’d 01:11:20
- Flowcharting for Missing TINs 01:14:28
- Flowcharting for Missing TINs Cont’d 01:15:17
- TIN Verification 01:18:22
- Accessibility 01:19:54
- Current TIN Matching Program 01:21:47
- Current TIN Matching Program Cont’d 01:22:46
- Current TIN Matching Program Cont’d 01:23:59
- Do I need to register through Secure Access? 01:25:06
- Registration 01:27:49
- Items Needed For Registration 01:28:44
- Items Needed For Registration Cont’d 01:30:54
- Verifying Your Identity 01:31:43
- Can I Change My Username When I Register Through Secure Access? 01:33:28
- Notes 01:34:29
- Wrap Up 01:36:57
- Presentation Closing 01:40:43
- Backup Withholding 00:02:02, 00:10:08, 00:14:01, 00:15:39, 00:23:30, 00:34:00, 00:40:39, 01:15:14
- B-Notice 00:02:01, 00:37:26, 00:38:36, 00:47:38, 00:52:16
- CP2100 00:35:38, 00:39:03, 00:47:21, 00:50:54, 00:57:24
- CP2100A 00:35:38, 00:39:03, 00:47:22, 00:57:24
- EIN 00:14:24
- Form 1099-B 00:13:17
- Form 1099-C 00:04:23
- Form 1099-DIV 00:12:57, 01:19:54
- Form 1099-INT 00:13:01, 00:40:49, 01:19:54
- Form 1099-K 00:13:26, 01:19:54
- Form 1099-MISC 00:05:25, 00:12:01, 00:13:39, 00:27:46, 01:19:54
- Form 1099-NEC 00:05:25, 00:11:50, 00:13:39, 00:27:44, 01:19:54
- Form 1099-OID 00:13:13, 01:19:54
- Form 1099-PATR 00:13:07, 01:19:54
- Form 945 00:32:11
- Form W-200:09:23
- Form W-9 00:20:12, 00:39:00, 01:01:09, 01:16:32
- IRC Section 3406(a) 00:09:39
- IRS Letter 1948C 00:56:24
- IRS Notice 972CG 00:37:37, 00:53:56
- IRS Secure Access 01:26:17
- ITIN 00:15:42, 00:16:09, 00:20:08
- Nonresident Alien (NRA) 00:15:48, 00:30:18
- Publication 1281 00:44:22
- Reasonable Cause 00:56:36
- Resident Alien 00:15:48
- S Corporation 00:21:17
- TIN 00:02:01, 00:09:47, 00:14:06, 00:20:08, 00:50:59, 00:59:45, 01:14:30
- TIN Matching Program 01:21:47, 01:23:33, 01:27:18
- W-8BEN 00:29:13, 00:30:27
B-Notice: A notice from the IRS stating that one or more tax ID numbers were missing from a 1099 or do not match the IRS records.
Backup Withholding: Backup withholding is the tax that is levied on investment income, at an established tax rate, as the investor withdraws it. Backup withholding helps to ensure that government tax-collecting agencies (such as the IRS or Canada Revenue Agency) will be able to receive income taxes owed to them from investors' earnings. (www.investopedia.com)
CP-2100: It is a notice that tells a payer that he or she may be responsible for backup withholding. It is accompanied by a listing of missing, incorrect, and/or not currently issued payee TINs. Largevolume filers will receive a CD or DVD data file CP2100, mid-size filers receive a paper CP2100, andsmall filers receive a paper CP2100A.
CP2100-A: It is a notice that tells a payer that he or she may be responsible for backup withholding. It isaccompanied by a listing of missing, incorrect, and/or not currently issued payee TINs. Largevolume filers will receive a CD or DVD data file CP2100, mid-size filers receive a paper CP2100, andsmall filers receive a paper CP2100A.
EIN: The Employer Identification Number, also known as the Federal Employer Identification Number or the Federal Tax Identification Number, is a unique nine-digit number assigned by the Internal Revenue Service to business entities operating in the United States for the purposes of identification.
Form 1099-B: Proceeds From Broker and Barter Exchange Transactions is an Internal Revenue Service (IRS) tax form that is issued by brokers or barter exchanges. The form lists the gains or losses of all broker or barter exchange transactions.
Form 1099-C: According to the IRS, nearly any debt you owe that is canceled, forgiven or discharged becomes taxable income to you. You'll receive a Form 1099-C, "Cancellation of Debt," from the lender that forgave the debt.
Form 1099-DIV : Form 1099-DIV: Dividends and Distributions is an Internal Revenue Service (IRS) form sent to investors who receive distributions from any type of investment during a calendar year. Investors can receive multiple 1099-DIVs. Each Form 1099-DIV should be reported on an investor's tax filing.
Form 1099-INT: Form 1099-INT is the IRS tax form used to report interest income. The form is issued by all payers of interest income to investors at year end and includes a breakdown of all types of interest income and related expenses. Payers must issue Form 1099-INTs for any party to whom they paid at least $10 of interest during the year.
Form 1099-K: A payment settlement entity (PSE) must file Form 1099-K for payments made in settlement of reportable payment transactions for each calendar year. A PSE makes a payment in settlement of a reportable payment transaction, that is, any payment card or third party network transaction, if the PSE submits the instruction to transfer funds to the account of the participating payee to settle the reportable payment transaction.
Form 1099-MISC: The Form 1099-MISC is an Internal Revenue Service (IRS) tax return document used to report miscellaneous payments made to nonemployee individuals, such as independent contractors, during the calendar year. (www.shrm.org)
Form 1099-NEC: In the context of 1099 tax filing, NEC stands for “Nonemployee Compensation” (the first letters of the three words None, Employee and Compensation). Most tax payers recognize NEC as box 7 on Form 1099-MISC. NEC is used to report income paid to independent-contractors / the-self-employed (referred to as 1099 employees for simplification purposes). So, while employers report income that gets paid to employees on Box 1 (Wages, tips, other compensation) of the W2 form, payers report income that gets paid to none-employees on Box 7 (NEC) of the 1099-MISC form. As an individual, if you received form 1099-MISC instead of Form W-2 then the payer did not consider you an employee and did not withhold income tax or social security and Medicare tax.
Form 1099-OID: Form 1099-OID is a tax form intended to be submitted to the Internal Revenue Service by the holder of debt instruments which were discounted at purchase to report the taxable difference between the instruments' actual value and the discounted purchase price.
Form 1099-PATR: File Form 1099-PATR, Taxable Distributions Received From Cooperatives, for each person to whom the cooperative has paid at least $10 in patronage dividends and other distributions described in section 6044(b), or from whom you withheld any federal income tax under the backup withholding rules regardless of the amount of the payment.
Form 945: IRS Form 945 is titled Annual Return of Withheld Federal Income Tax. Form 945 is used to report withheld federal income tax from nonpayroll payments, including distributions from qualified retirement plans.
Form W-2: Form W-2 is an Internal Revenue Service tax form used in the United States to report wages paid to employees and the taxes withheld from them. Employers must complete a Form W-2 for each employee to whom they pay a salary, wage, or other compensation as part of the employment relationship. - Wikipedia (https://en.wikipedia.org/)
Form W-9: Form W-9 (officially, the "Request for Taxpayer Identification Number and Certification") is used in the United States income tax system by a third party who must file an information return with the Internal Revenue Service (IRS). It requests the name, address, and taxpayer identification information of a taxpayer (in the form of a Social Security Number or Employer Identification Number). - Wikipedia (https://en.m.wikipedia.org/)
IRC Section 3406(a): Requires that, under certain circumstances, including the payee's failure to provide a TIN, the payer must perform backup withholding.
IRC Section 6724: I.R.C. § 6724(a) Reasonable Cause Waiver — No penalty shall be imposed under this part with respect to any failure if it is shown that such failure is due to reasonable cause and not to willful neglect.
IRS Letter 1948C : The IRS may issue Letter 1948C to ask for additional explanation or information to support the request to waive the proposed penalty. If the filer doesn't respond by the time indicated on the letter, the IRS will deny the waiver request and assess the proposed penalty.
IRS Notice 972CG: The IRS started mailing 972CG penalty notices in July 2013 regarding 1099's with missing or incorrect TIN/Name Combinations. A 972CG is a NOTICE OF PROPOSED CIVIL PENALTY. A simple way to prevent this costly penalty is to verify that your information is correct prior to filing.
IRS Secure Access: The IRS is using ID.me, a trusted technology provider, to provide identity verification and sign-in services. If you have an ID.me account from a state government or federal agency, you can sign in without verifying your identity again. If you’re a new user, you’ll have to create a new ID.me account. This identity verification process applies to IRS services including Online Account, Get Transcript Online, Online Payment Agreement, Get an Identity Protection PIN (IP PIN), Tax Pro Account, and Submit Forms 2848 and 8821 Online. The purpose is to prevent taxpayer impersonations and account takeovers by identity thieves.
Nonresident Alien (NRA): This income is taxed at a flat 30% rate, unless a tax treaty specifies a lower rate. Nonresident aliens must file and pay any tax due using Form 1040NR, U.S. Nonresident Alien Income Tax Return or Form 1040NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens with No Dependents.
Publication 1281: This publication contains information about the backup withholding requirements that apply to theinformation returns that you filed.
Reasonable Cause : Reasonable cause is based on all the facts and circumstances in your situation. The IRS will consider any reason which establishes that you used all ordinary business care and prudence to meet your federal tax obligations but were nevertheless unable to do so.
Resident Alien : A resident alien is a foreign person who is a permanent resident of the country in which he or she resides but does not have citizenship. To fall under this classification in the United States, a person needs to either have a current green card or have had one in the previous calendar year.
S Corporation: An S corporation, for United States federal income tax, is a closely held corporation that makes a valid election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code. In general, S corporations do not pay any income taxes.
TIN: A Taxpayer Identification Number is an identifying number used for tax purposes in the United States and in other countries under the Common Reporting Standard. In the United States, it is also known as a Tax Identification Number or Federal Taxpayer Identification Number.
TIN Match Program: TIN Matching is part of a suite of Internet-based pre-filing e-services that allows “authorized payers” the opportunity to match 1099 payee information against IRS records prior to filing information returns.
W-8BEN: Form W8-BEN, Certificate of Foreign Status of Beneficial Owner for U.S. Tax Withholding, is used by a foreign person to establish both foreign status and beneficial ownership, and to claim income tax treaty benefits with respect to income other than compensation for personal services. Give Form W-8 BEN to the withholding agent or payer if you are a foreign person and you are the beneficial owner of an amount subject to withholding. Submit Form W-8 BEN when requested by the withholding agent or payer whether or not you are claiming a reduced rate of, or exemption from, withholding.