Businesses are required to issue Form 1099-Misc for payments made of $600 or more for services, rents, attorney fees, medical & health care services, etc. paid to individuals, partnerships, LLC’s and some corporations. A comprehensive list of payments requiring 1099’s, is included in the instructions for 1099-Misc and can be found on the IRS website.

The IRS is focusing on this area of compliance for information reporting and many tax payers will be receiving notices for errors such as names and tax id numbers not matching, paper filing when electronic filing is required or for late or non-filing when required. Penalties for non-compliance have increased and can be significant.

The IRS has the authority to fine filers $100 for each error including clerical and TIN/Name mismatches.

If your company receives a notice assessing penalties, a request for abatement should be made. Please contact us immediately as these notices are time sensitive. Do not pay the penalty without first attempting to get the penalty abated to avoid establishing a history of non-compliance.

If you receive a notice from the IRS that the name and id number do not match, please contact us so that we can assist you in fulfilling the requirements of the notice.

To avoid errors and notices, we strongly recommend establishing a company policy for 1099 Reporting to include (but not limited to) the following:

1. Require completed Form W-9 from every vendor before the first payment is made. This should be done on an annual basis and kept for your records. The IRS will want to see these in an audit situation.
2. Implement tax identification number matching. The IRS provides a free service to match payee information against IRS records. See the e-services section of the IRS website for additional information, or contact us if you would like us to provide the service for you.
3. Begin backup withholding for any vendor that does not provide the necessary information such as name, address and tax identification number (either social security number or employer identification number). The rate for 2012 is 28%. More information for remitting backup withholding to the IRS can be found in IRS Publication 1281.
4. Document the solicitation for correct information if company becomes aware that the vendor information has changed or is incorrect. If a notice from the IRS has been received stating the name and tax id number does not match, you are required to notify the vendor in writing and must correct the information or begin backup withholding before additional payments are made.
5. Determine who has authorization to sign information returns.
6. Update accounts payable software to include all vendor information and track payees who will require 1099’s.
7. Process all payments to qualified vendors through accounts payable software and do not pay with petty cash.

If a policy for information reporting is not in place, getting penalties abated will be very difficult or even unlikely.
McKerley and Noonan offers the service of preparing and electronically filing 1099’s as well as TIN Matching. Please let us know if you need assistance in implementing a policy for information reporting.

There are other information reporting requirements related to interest income, cancellation of debt, foreign workers among others. We can discuss these with you to determine what information reporting requirements pertain to your business.