TIN Verification, B-Notices, and Backup Withholding: Best Practices To Reduce IRS Notices And Avoid Penalties
Please see below for additional instructions and information regarding this program.
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
- What’s New 00:01:11
- Filing Forms Correctly Starts With Getting the W-9 Right 00:08:33
- Form W-9 Solicitation Tips to Ensure You Capture Form 1099 Payee Data 00:16:42
- Your Payee Refuses to Provide their TIN on the W-9 - Here’s What To Do 00:19:36
- Watch Out For Backup Withholding Audits From Seemingly Unlikely Payment Situations 00:21:51
- Using the IRS TIN Program to Clean UP Your Files Prior to Form 1099 Reporting 00:25:19
- TIN Match Program Tips 00:29:02
- TIN Matching and Policies and Procedures 00:30:41
- TIN Match Program and Penalty Abatement 00:33:21
- Backup Withholding 00:36:34
- Backup Withholding and the New Form 1099-MISC Versus 1099-NEC 00:37:24
- Backup Withholding - Four triggers 00:45:24
- Backup Withholding - IRS Expectations 00:46:40
- Backup Withholding - Example 00:47:15
- Backup Withholding - What if? 00:49:04
- Backup Withholding: The Form 945 00:50:54
- Backup Withholding: The Form 945 (cont’d) 00:53:21
- B-Notice Response Best Practices 00:56:37
- B-Notice Response Best Practices (cont.) 00:59:03
- B-Notice Response Best Practices - 1st Notice 01:01:43
- B-Notice Response Best Practices - 2nd Notice 01:04:21
- IRS Form 972-CG Proposed Penalty Notice and Reasonable Cause 01:10:47
- IRS Form 972-CG Proposed Penalty Notice and Reasonable Cause (cont.) 01:14:17
- IRS Form 972-CG Proposed Penalty Notice and Reasonable Cause (cont.) 01:17:51
- IRS Form 972-CG Proposed Penalty Notice and Reasonable Cause (cont.) 01:22:42
- Protect Yourself- Presentation Closing 01:29:22
- Attendee Questions 01:30:31
- Presentation Closing 01:39:31
- Audit 00:22:59
- Backup Withholding 00:01:21, 00:04:13, 00:09:21, 00:19:07, 00:40:25
- B-Notice 00:07:09, 00:45:55, 00:50:20
- C Corporation 00:13:57
- C-Notice 00:46:01, 00:50:31
- CP-2100 00:07:04, 00:56:42
- CP-2100-A 00:07:04, 0:56:44
- DBA -Doing Business As 00:10:49
- Disregarded Entity 00:11:03
- EIN 00:59:29
- FATCA 00:09:27
- Form 1042 00:23:08
- Form 1042-S 00:05:10
- Form 1042-S 00:23:08
- Form 1099-B 00:25:19, 00:56:37
- Form 1099-DIV 00:25:19, 00:56:37
- Form 1099-INT 00:25:19, 00:56:37
- Form 1099-K 00:25:19, 00:56:37
- Form 1099 MISC 00:01:15, 00:16:24, 00:39:21
- Form 1099-NEC 00:01:17, 00:16:21, 00:38:10
- Form 1099-OID 00:25:19, 00:56:37
- Form 1099-PATR 00:25:19, 00:56:37
- Form 945 00:23:47, 00:50:57
- Form 945-A 00:52:06
- Form W-9 00:08:42, 00:46:12
- IRC 972-CG 00:30:41, 01:10:51
- IRC Section 3406(a) 00:01:11, 00:20:22, 00:36:34
- IRC Section 6109(a)(2) 00:01:11, 00:08:50, 00:20:38
- IRC Section 6140(a) 00:01:11
- IRC Section 6721 00:33:56
- IRC Section 6722 00:33:57
- IRC Section 6724 00:33:59
- Limited Liability Company (LLC) 00:11:15, 00:12:15
- Safe Harbor 00:04:59
- S Corporation 00:13:55
- Sole Proprietor 00:14:08
- Tax Cuts and Jobs Act 00:37:21
- Tax Gap 00:02:14
- TIN 00:09:00, 00:13:46, 00:19:17
- TIN Match Program 00:25:33, 00:33:33
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)
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.
C-Notice: Backup withholding notice from the IRS stating that the non-employee has understated income and is subject to backup withholding.
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. Large volume filers will receive a CD or DVD data file CP2100, mid-size filers receive a paper CP2100, and small 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 is accompanied by a listing of missing, incorrect, and/or not currently issued payee TINs. Large volume filers will receive a CD or DVD data file CP2100, mid-size filers receive a paper CP2100, and small filers receive a paper CP2100A.
DBA -Doing Business As: Sometimes it makes sense for a company to do business under a different name. To do this, the company has to file what's known as a DBA, meaning "doing business as." A DBA is also known as a "fictitious business name," "trade name," or "assumed name."
Disregarded Entity: A disregarded entity refers to a business entity with one owner that is not recognized for tax purposes as an entity separate from its owner. A single-member LLC ( “SMLLC”), for example, is considered to be a disregarded entity. (www.pntax.com)
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 1042-S: Form 1042-S is used to report amounts paid to foreign persons (including persons presumed to be foreign) who are subject to income tax withholding. For an individual taxpayer, Form 1042-S is a document provided to you (and the IRS) by the payer of the income reported.
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-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 945-A: Use this form to report your federal tax liability (based on the dates payments were made or wages were paid) for the following tax returns. *Forms 945 and 945-X for federal income tax withholding on nonpayroll payments. *Forms CT-1 and CT-1 X for both employee and employer Tier I taxes and employer Tier II taxes. *Forms 944 and 944-X for federal income tax withheld plus both employee and employer social security and Medicare taxes.
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 6041(a): Provides that persons engaged in trade or business must report certain payments on an information return.
IRC Section 6109(a)(2): Requires that a payee provide a TIN to the payer when the payment will be reportable on an information return.
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.
Limited liability company (LLC): An LLC is a corporate structure where members cannot be held accountable for the company’s debts or liabilities. This can shield business owners from losing their entire life savings if, for example, someone were to sue the company. Can be a single member (much like a sole proprietor) or a multi-member. It shares certain traits of both corporations as well as partnerships or sole proprietorships. It is not a corporation.
Safe Harbor: A safe harbor is a provision of a statute or a regulation that specifies that certain conduct will be deemed not to violate a given rule. It is usually found in connection with a vaguer, overall standard. Under the safe harbor, a “rental real estate enterprise” is treated as a trade or business for purposes of Sec. 199A if at least 250 hours of services are performed each tax year with respect to the enterprise. ... The safe harbor requires that separate books and records be maintained for the rental real estate enterprise.
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.
Tax Cuts and Jobs Act: The Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, Pub.L. 115–97, is a congressional revenue act of the United States originally introduced in Congress as the Tax Cuts and Jobs Act, that amended the Internal Revenue Code of 1986.
Tax Gap: The gross tax gap is the difference between true tax liability for a given tax year and the amount that is paid on time. It is comprised of the nonfiling gap, the underreporting gap, and the underpayment (or remittance) gap.
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.
Audit: A formal examination of an organization's or individual's accounts or financial situation
C Corporations : A C corporation, under United States federal income tax law, refers to any corporation that is taxed separately from its owners. A C corporation is distinguished from an S corporation, which generally is not taxed separately. Most major companies are treated as C corporations for U.S. federal income tax purposes.
IRC Section 6721: If an employer fails to file a correct Information, return by the due date, and cannot show reasonable cause, the employer may be subject to a penalty as provided under IRC Section 6721.
IRC Section 6722: IRC Sec. 6722 authorizes a civil penalty for failing to provide payees with correct copies of statements furnished to the IRS.
Steven Mercatante is the principal and founder of TIR Consulting, LLC. He is a nationally recognized leader in tax reporting education and consulting on specialized compliance issues. He has conducted on-site consultation for corporate clients from across the world and led countless seminars and webinars for Convey Compliance Systems, IAPP, Balance Consulting, The Accounts Payable Network, Accounts Payable Now and Tomorrow, Progressive Business Conferences, The Center For Competitive Management,... View Full Profile
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