Last month the IRS sent out notices to businesses notifying them of incorrect Name/TIN’s on the 1099’s submitted earlier this year. I have noticed over the years that all IRS notices generally look scarier than they really are. Mainly because they are coming from the IRS! The explanations from the IRS on what to do often need further explaining to actually make sense for an accountant let alone the non-accounting public. So I thought I would take a few minutes to break down the steps needed to fulfill the request from the IRS to ensure you are compliant.
The basic overview of the process is to review the notice for which vendors are included and check the vendor records. Then based on what you find in your initial review, additional steps may be needed to complete your compliance with the notice. Some terminology that is used is TIN (Tax Identification Number); this could be a SSN (Social Security Number) or an EIN (Employer Identification Number). A TIN can only have 9 numbers and does not include any letters.
Now that you have an overview let’s dive into step one and then take some action.
First you will need to get your source documents. Grab your folder of 1099 copies produced and sent to the IRS for the year on the notice, and the corresponding completed W-9 copies for those vendors. Ideally this should all be in one folder and easy to grab and view, either electronically or in a physical file.
After you have obtained the source documents, start to go vendor by vendor from the IRS notice and locate the 1099 and W-9 copies for that vendor. Depending on the list of vendors, you could create a tracking sheet in excel or just write notes on the notice itself with your findings to keep organized.
The first thing to check is does the Name and TIN on the notice match your records? If it doesn’t match, why not? You need to determine why to know what steps to take. Is the mismatch because the IRS processed it incorrectly? Meaning what is on the IRS notice is different from what is on the 1099 form sent in. If yes, then no more action is required and note that on your tracking sheet.
If it is not due to the IRS processing but due to an error you did in processing, then you need to correct your records but you don’t need to re-file anything with the IRS. I.e; the EIN on the W-9 is not the same number that was printed on the 1099 form for that vendor. Someone made a data entry error that wasn’t caught before going to the IRS and the IRS caught it. If that is the case, then just update your records with the correct EIN so next year it will process correctly. Do not submit something to the IRS.
If the Name and TIN on the notice do match your records then you need to take different action. Instead of correcting your records you need to reach out to the vendor to get the correct records. If this is the first notification you received that their Name and TIN mismatch, then send the First B-Notice with Form W-9 to the payee. (I will go into more details about what a B-Notice is and what steps to take in my next blog.) I have found a lot of the research and mismatch corrections are resolved before needing to contact the vendor and send notices, but if it does turn out you need to, then take the action and correct it. Better to take a few extra steps now to be compliant and do it right than getting fines and penalties later. It definitely takes more time and cost more to do it later.
So as a reminder, if you have made an error in the processing or you have received more/updated information from the vendor since you filed the 1099, no more action needs to take place.
By receiving updated information, you would receive a new completed W-9 form from the vendor which lists different information from the one used when the 1099 was filed.
To complete your records, save the notice received and your research with notes on the outcome with the 1099 copies file for easy reference in the future.
If you have done the initial research and reviewed all the vendors on your list and source documents match what the IRS list shows, then you need to send a B-Notice to the vendor within 15 days of receiving the notice. A B-Notice is notifying the vendor that you are required to begin back-up withholding at a rate of 28% if the correct information is not received. I will go into more detail in my next blog on the correct steps to take to create and send B-Notices and follow through to back-up withholdings if necessary.
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