Tell your finance staff to be wary. IRS is zeroing in on 1099 and 1042-S compliance, meaning it’s now even more vital for them to get information returns correct.
That’s the word from tax expert Marianne Couch, who recently spoke at the A/P P2P Conference & Expo.
If those information returns aren’t accurate, your company could be looking at costly penalties and additional scrutiny from the feds – two things you’d like to avoid at all costs.
Here’s what your finance staff needs to know for the rest of 2019 and beyond:
Old 1099s come back to bite
First and foremost, IRS has planned a brand-new compliance project for mid-2019, aimed to find companies that fail to properly backup withhold, Couch reports.
A few years ago, a tax audit conducted by the U.S. Treasury Inspector General for Tax Administration found billions of dollars in backup withholding failures for 1099-reportable payments. That spurred IRS to turn an eye to your 1099s. In 2017, it made a rule to include 1099s in all tax employment audits. And this 2019 project is the next step.
To steer clear of trouble now:
Summer: Proposed penalty notices come in August. If your company receives a notice from IRS, don’t just have A/P pay it, Couch says. There’s a good chance you can get the penalties waived if you submit a waiver to IRS showing your good-faith effort. (Example: You could provide documentation and explanations showing your company did everything it could to solicit correct info from the vendor).
Fall: You know that every fall and spring, IRS sends B Notices, which could trigger withholding obligations if any vendors had missing/incorrect TINs. Even if your company doesn’t receive a B Notice during these times, it’s good idea to have one of your staffers call the Service and verify it didn’t send any, as they can easily get lost in the mail.
And as year-end draws closer, be sure your finance staffers take advantage of IRS’s TIN Matching Program to avoid errors and keep future B Notices at bay. To guarantee the task doesn’t get overlooked, consider putting one staffer in charge of managing it, or scheduling specific time blocks for staffers to verify TINs.
And that’s not all …
There are more possible penalties looming! IRS is also turning up the heat on your company’s 1042-S compliance. The Service is looking at whether you have the correct versions of W-8s, necessary info for income tax treaties, etc.
Foreign payments and treaty rules can be confusing, Couch admits. So, remind staffers: Your recipient must have a U.S. TIN, like an SSN or iTIN, to claim an income tax treaty. And with all foreign vendors, it’s key for staffers to maintain solid documentation of contracts, addresses and the like, in case you have to justify your actions to IRS.