In my last blog I started diving into the IRS notice CP2100 received by businesses informing them of incorrect or mismatched Name/TIN reported on 1099’s (Part 1). Now, I’m going through the details of what action to take if the Name & TIN on the notice match your records. This means you have already checked the 1099’s you sent to the IRS/vendor and the W-9 form the vendor filled out and confirmed those documents match the information listed for each vendor on the notice received from the IRS.
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 a letter you send notifying the vendor that you are required to begin back-up withholding at a rate of 28% if the correct information is not received. You can refer to the IRS for detailed instructions and for the B-Notice template at http://www.irs.gov/pub/irs-pdf/p1281.pdf
I hope to clarify the details as the IRS reading material isn’t the most user friendly.
First you send the First “B” Notice, a Form W-9, and an optional reply envelope to the vendor within 15 days of receiving/date of the notice. You need to fill items on the “B” Notice before sending it out.
- Date Form W-9 need to be returned by, put this date for 30 business days after the notice was received/dated whichever is later.
- Current Account Number current information on file for vendor; name and TIN/SSN
- Backup Withholding Percentage (BWP), currently 28%
On the outside of the envelope clearly mark “IMPORTANT TAX INFORMATION ENCLOSED”. Mail the “B” Notice and Form W-9 to vendor and wait for reply. Set a reminder for 30 days from when the first notices are sent to do a follow up. When the completed W-9 is received from a vendor with in the 30 days update records with certified Name/TIN and mark on your tracking sheet as complete.
After 30 days from when the First “B” notices were mailed, if you have not received a completed W-9 from the vendor, you need to start backup withholdings. You may start withholding immediately after you receive the CP2100 notice, but can wait up to 30 days to start. This means you are then required to withhold 28% of the payment due to that vendor and send it to the IRS. Meaning, if vendor “A” charged you $1,000 for their services you pay them $720 and you send the other $280 to the IRS for them. The way to avoid this is to get a correct Form W-9 on file for the vendor. I personally haven’t seen a vendor drag their feet too long to get you a completed form when you are going to start short paying their invoices and paying the rest to the IRS.
If a vendor doesn’t get you the information and you actually start back-up withholding, you will file Form 945 to report the taxes to the IRS and remit payment to them. More information on Form 945 on another day or read on the IRS website for more information if this is applicable for your business.
A Second “B” notice is sent to a vendor after your business has received the CP2100 notice with the same vendor within 3 years. The notice is basically telling the vendor to figure it out, something is wrong with the information they are providing and it gives them steps to follow to get it corrected.
This can get frustrating as you are now the middle man, passing information from the IRS direct to payee/vendor, which is probably not why you are in business. Consider using a different vendor if they cannot provide the correct tax documents in a timely manner.
Check out the video blog on this topic!Written by: Bridgette Cerles TGG Accounting