backup withholding and form 1099 miscellaneous … fall conference/presentations...backup...

Federal, State & Local Employment Tax

Backup Withholding and

Form 1099 Miscellaneous

Update

Presenter

Michael Durland CPA,

Revenue Agent, FSL/ET

Michael.Durland@irs.gov

434-218-6432

2

Backup Withholding

• Internal Revenue Code Section 3406

• Withhold specified percentage (currently

24%)

• Of reportable payments

• Reported on information returns

3

Form 1099 Reminders

• Paid $600 or more for:

• Rent

• Non-employee compensation

• Prizes and awards

• Medical or healthcare costs

• Attorney payments

• Issue Form 1099-MISC to:

• Individuals and partnerships

• Corporations - if medical, health care, or

attorney payments

4

Information Return Law Updates

New Filing Due Date : January 31st

Forms W-2/W-3 to SSA

Forms 1099-MISC, Box 7 to IRS

Inflation-Indexed Penalty Amounts

Effective: January 1, 2016

5

IRC §§6721/6722 Penalties for Failure to File & Failure to Furnish

• Information Returns due Jan. 1st, 2016 forward

• Not more than 30 days late = $50/return

[capped at $532,000]

• 31 days late up to August 1st = $100/return

[capped at $1,596,500]

• Later than August 1st = $260/return [capped

at $3,193,000/calendar year]

6

IRC §6721 Penalty Failure to File

De Minimis Failures

If corrected and filed by August 1st –

Then, the failures may not exceed the greater

of:

1. 10; or

2. One-half of one percent (.005) of the

information returns required to be filed

7

IRC §§6721/6722 Penalties for Failure to File & Failure to Furnish

Intentional Disregard

The greater of:

1. $520 per information return (>2016); or

2. Ten percent (10%) of the aggregated

amounts required to be reported correctly;

and

3. the caps on penalties are removed.

8

IRC §6723 Penalty Failure to Comply with Other Reporting Requirements

• $50 per Information Return

[Capped at $100,000/calendar year]

9

Questions

• Entity classification/type?

• Reportable payments?

• Backup withholding apply?

• File Form 1099 with the IRS?

• Furnish Form 1099 to payee?

• Payee’s Taxpayer Identification Number

(TIN)?

10

Form W-9

• Specify Limited Liability Company (LLC)

classification

• Corporation

• Partnership

• Disregarded entity

• Some payees exempt from backup

withholding

• Payee must provide TIN

11

Backup Withholding (BWH)

• Common payments subject to BWH:

• Interest and dividends

• Rents, royalties

• Commissions

• Gross proceeds paid to attorneys

• Non-employee compensation

• Certain payments are excluded from BWH

12

Backup Withholding – Ex 1

• BWH required when a reportable payment is

made to a payee:

• Not exempt from BWH

• Who hasn’t provided their TIN

13

Backup Withholding – Ex 2

• BWH required when:

• Payer receives a CP2100 or CP2100A Notice

(CP Notice) from the IRS listing TINS that are:

• Missing

• Incorrect, and/or

• Not currently issued

14

CP2100 & CP2100A Notices

• Large volume filers

• Have ≥ 250 error documents

• Receive a CD or DVD data file CP2100

• Mid-size filers

• Have 50 - 249 error documents

• Receive a paper CP2100

• Small filers

• Have < 50 error documents

• Receive a paper CP2100A

15

CP Notice – Missing TIN

• Begin BWH on payee payments

• Continue BWH until the TIN is received

• “Missing TIN”

• Not provided

• Has more or fewer than nine numbers

• Has an alpha character as a number

• See FAQ #19 in Publication 1281

16

“B” Notice 1 of 2

• “B”ackup withholding Notice

• There are two “B” Notices

• The First “B” Notice – when a payee appears

only once on the last 3 annual CP Notice lists

• The Second “B” Notice - when a payee

appears on 2 of the last 3 annual CP Notice

lists.

• The information may not be solicited by

telephone

17

CP Notice – Incorrect TIN

• If your information does not agree with the

CP Notice, no “B” Notice is required to be

sent. It could be the result of:

• A recent update to SSA records,

• An error in the information you submitted, or

• An IRS processing error

• If your information and the CP Notice agree,

send the appropriate “B” Notice to the payee

(unless it relates to the same tax year as the earlier

CP Notice - See Publication 1281.)

18

“B” Notice 2 of 2

• For the two “B” Notices, on the outside

mailing envelope, mark:

• “IMPORTANT TAX INFORMATION

ENCLOSED” or,

• “IMPORTANT TAX RETURN DOCUMENT

ENCLOSED”

19

First “B” Notice Requirements

• Send First “B” Notice & Form W-9 by the later

of 15 business days from date

• Of CP Notice

• You receive it

• Begin BWH if no signed Form W-9 received

• Stop BWH when a signed Form W-9 is

received

20

Second “B” Notice Requirements 1 of 3

• Send Second “B” Notice within 15 business

days after you receive the second CP Notice

• Don’t include a Form W-9

• Payee to contact IRS or SSA

• Payer must receive a validation of the payee

name/TIN combination

21

Second “B” Notice Requirements 2 of 3

• Payee validates these by providing payer:

• SSN - a current Social Security card

• EIN - an IRS Letter 147C

22

Second “B” Notice Requirements 3 of 3

• Begin BWH no later than 30 business days

after receipt of the CP Notice, unless Social

Security card or IRS Letter 147C received

from payee

• Stop BWH within 30 days after receiving the

validation

23

Third and Subsequent “B” Notice

• After two CP Notices received and two “B”

Notices sent for a name/TIN combination,

check “2nd TIN Not.” box on Form 1099.

Ignore subsequent CP Notices for that

name/TIN.

• If a CP Notice is received for the same payee

but different name/TIN combination, treat the

notice as a first CP Notice and send a First

“B” Notice.

24

Form 945

• Report backup withholding tax annually

• Follow deposit requirements in Publication

15, (Circular E), Employer’s Tax Guide

25

Where to Call for Help

• Backup withholding, information reporting,

Forms 1099, CP Notices:

• The Information Reporting Program

Centralized Customer Service Site

• Telephone 866-455-7438 (toll free)

• 304-263-8700 (not toll free)

• Hours 8:30 - 4:30 pm M - F, EDT

• E-Mail mccirp@irs.gov

26

TIN Matching Service

• You may verify any Taxpayer Identification Number (TIN) by registering with the IRS’s TIN Matching Program

• Use of the TIN Matching program will reduce the number of TIN/Name mismatches and protect the employer from civil penalties

• Failure to register and/or use program will not be used to impose civil penalties on non-users

27

TIN Matching Service

The TIN Matching Program contains

all Social Security Numbers

(SSNs), Individual Taxpayer

Identification number (ITINs), and

Employer Identification Numbers

(EINs) issued by SSA and IRS

Register with IRS e-services at

www.irs.gov/taxpros

28

TIN Matching Service

• Interactive TIN Matching - Match groups of up

to 25 payee name/TIN combinations – up to

999 requests

• Bulk TIN Matching – Submit a file with up to

100,000 TIN/name combinations

• See Publication 2108A

• See “how to” video at IRSvideos.gov

29

RESOURCES

IRS Forms and Publications

• http://publish.no.irs.gov/catlg.html

• Forms 1-800-829-3676 (800-TAX-

FORM)

• “General Instructions for Certain Information

Returns” (Catalog #27976F)

• “Instructions for Forms 1099-MISC” (Catalog

#11409F)

30

RESOURCES

• Tax-Exempt/Government Entities Customer

Account Services

• 877-829-5500 (8:00 am - 9:30 pm EST)

• Federal, State & Local/Employment Tax

(FSL/ET)

https://www.irs.gov/government-entities/federal-state-local

governments/information-returns

https://www.irs.gov/government-entities/federal-state-local-

governments/increase-in-information-return-penalties-2

31

End of Presentation

Thank You!

32