form 1099 developments and compliance tips...form 1099-misc reporting “nec” now due january 31st...
TRANSCRIPT
The Accounts Payable & Procure-To-Pay Conference & Expo is produced by:
Form 1099 Developments and
Compliance Tips
Marianne Couch, J.D. COKALA Tax Information Reporting Specialists, LLC
www.cokala.com
May, 2016
The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 2
Form 1099-MISC Reporting “NEC” Now Due January 31st
• “NEC” = non-employee compensation (amounts
reported in box 7).
• These forms will be due January 31 to both the
payee and the IRS beginning in 2017 (reporting
TY 2016 payments).
• The January 31 IRS due date applies equally to
paper forms and electronically filed forms. – For 1099-MISC box 7 reporting, electronic filing does not
give you any later filing date. – Forms W-2 and W-3 are also subject to the new January
31 filing due date.
The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 3
Form 1099-MISC Reporting “NEC” Now Due January 31st
• If you have reportable payees with a box 7 amount
and an amount in another box of the Form 1099-
MISC, you have a choice of filing a single 1099-
MISC that reports both boxes by January 31 – or
filing one 1099-MISC that reports the box 7 amount
by January 31, then filing another 1099-MISC for the
same payee that reports the other box amount by
the standard February 28 (paper) or March 31
(electronic) due date.
The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 4
Form 1096 – Transmittal for TY 2016 shows
change to cover NEC 1099-MISC • Filers of paper forms should note that the IRS has made changes to
Form 1096 for use with information returns that report 2016
payments (Form 1096 is the transmittal form that must accompany
paper Forms 1099 filed with the IRS.)
• Box 7 of Form 1096 has been changed to provide a checkbox that
must be checked if the form accompanies “Forms 1099-MISC with
NEC in box 7.”
• The IRS has eliminated indications of “final return.”
– That was the previous use of box 7 on Form 1096 but it has been
removed from the form.
The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 5
Probable Elimination of Automatic 30-day Extension
• Proposed regulations, REG-132075-14, would eliminate automatic
30-day extensions of the IRS filing due date, but the first filings for
which this could apply would be 2017 forms due in 2018.
• The term "automatic" means that the filer does not have to provide a
reason as to why it needs an extension, but it must still file Form 8809 to
request the extension.
• When the automatic 30-day extension is eliminated, the IRS will still
accept and consider requests for 30-day extensions but a sufficiently
worthy reason must be provided to the IRS and the form will require
the signature of an individual authorized to sign for the reporting
business.
• This is the standard that currently applies if a second 30-day extension
is requested by a payer that already claimed a first 30-day automatic
extension.
The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 6
Extension and Form 1099-MISC Reporting NEC
• The automatic 30-day extension is still available for Forms 1099 filed in
2017 for payments made in 2016, but note the change in due date if
requesting an extension for Forms 1099-MISC reporting non-employee
compensation ("NEC").
• The IRS filing due date for Forms 1099-MISC reporting "NEC" is January 31
beginning with forms that report payments made in 2016 (due January 31,
2017).
• If you decide to claim the automatic 30-day extension for your 2016 1099-
MISC NEC forms, and your other 1099s, and your 1042-S forms, you will be
able to claim them all on one Form 8809 but you must send the 8809 no
later than January 31 (the earliest due date out of all the due dates you
want to extend).
• Or you can send more than one Form 8809, each one sent no later than the
earliest due date of the form(s) you specify on the 8809.
The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 7
Penalty Increase • $260 for failure to file, file timely, or file correctly
(up from $250).
• Maximum penalty ceilings:
– $3,178,500 ($1,059,500 for small businesses)
– $1,589,000 for penalties at $100 (corrections done by
August 31st) ($529,500 for small businesses)
– $529,500 for penalties at $60 (corrections done within
30 days after the required filing date) ($185,000 for
small businesses)
– Small business = gross receipts of $5,000,000 or
less.
The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 8
Corrections
• For 1099s filed after 12/31/16, no correction will
be required if: – the dollar amount for a single type of payment reported on the
Form 1099 was in error but within $100 of the correct amount; or
– the dollar amount reported as withheld tax was in error but within
$25 of the correct amount.
The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 9
President’s Federal Fiscal Year 2017 Proposals That Would Affect Information Reporting
and Withholding and Anticipated Impact on Revenue Collection
• Expand TIN Matching beyond just forms subject to
backup withholding:
– negligible revenue effect
• Independent contractors required to certify TIN and may
have tax withheld:
– $424 million additional revenue over the first 10 years
• Reporting of account balances held by foreign persons:
– $1 million additional over the first 10 years
• January 31 IRS filing date for most information returns:
– $72 million additional revenue over the first 10 years
The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 10
President’s Federal Fiscal Year 2017 Proposals That Would Affect Information
Reporting and Withholding and Anticipated Impact on Revenue Collection
• Require the use of average cost basis method for stock
that is a covered security:
– $1.2 billion additional revenue over the first 10 years
• Require non-spouse beneficiaries to take inherited IRA
distributions over no more than five years:
– $6.1 billion additional revenue over the first 10 years
• Limit Roth conversions to pre-tax dollars:
– $231 million additional revenue over the first 10 years.
The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 11
IRS “Future State” – Ideas, Recommendations and Plans
to Change how the IRS Operates and Interacts with
Taxpayers
• The IRS has opened a webpage devoted to future plans
and recommendations on how to improve tax processing
systems, increase electronic filing and payment options,
expand services available on IRS.gov and in general use
technology to improve the way taxpayers do business
with the IRS.
• The webpage is https://www.irs.gov/uac/Newsroom/IRS-Future-
State and the concepts are being presented and discussed
under the name “Future State.”
The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 12
IRS “Future State” – Ideas, Recommendations and Plans
to Change how the IRS Operates and Interacts with
Taxpayers • The IRS acknowledges that new technology can make many things
possible but “it needs to be done in a way that meets the needs of
taxpayers and the tax community in an efficient and effective
manner while respecting taxpayer rights.”
• The National Taxpayer Advocate is holding hearings on Future State
concepts and plans, and has expressed concerns about recognizing
the extent to which taxpayers will continue to need telephone and in-
person assistance, and the importance of complying with the
Taxpayer Bill of Rights;
– see https://www.irs.gov/uac/Newsroom/National-Taxpayer-Advocate-to-Hold-
Public-Forum-on-February-23-on-Taxpayer-Service-Needs-and-Preferences.
The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 13
Disregarded Entities
• The IRS has issued a clarifying regulation
applicable to partnerships that own disregarded
entities, and has several times clarified that a
disregarded business entity (DE) is a separate
taxpayer in its own name only for employment
and excise taxes, but this is not the case for
purposes of filing information returns.
The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 14
Disregarded Entities
• Instead, the parent entity or individual owner of the DE
does the 1099 or 1042-S reporting under their name and
EIN or SSN.
• For payments being made to the DE, the parent or
individual owner of the DE is considered the payee of
reportable income on Forms 1099 and 1042-S and, if
withholding is involved under IRC chapter 3 or chapter 4
or if backup withholding is required, it is based on the
status of the owner of the DE, not the DE.
The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 15
Audit/Examination – Employment Tax Examinations
Include Exam Of Information Return Filing Compliance
• If a company undergoes an employment tax examination by the IRS,
the examiner is required to also determine whether the company
filed information returns as required.
• The internal IRS directive calls the examiners’ attention specifically
to look at Forms 1099-MISC, 1099-K, 1099-INT and W-2, plus “etc.”
• If the appropriate forms were not correctly filed, the examiner must
consider expanding the audit to include a penalty case file and/or
review Form 945 in connection with establishing whether backup
withholding requirements have been met.
• See https://www.irs.gov/pub/foia/ig/spder/SBSE-04-0915-0058.pdf.
The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 16
TIN Truncation on Correspondence from IRS
• You may see the IRS truncate your
organization’s TIN on correspondence it sends
to you.
• If done, IRS probably presumes you could
identify the entity to which the correspondence
applies if only the final four digits of the TIN are
visible.
• Example: truncated EIN would appear as **-
***6789 or xx-xxx6789.
The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 17
Form 1098-T
• On the copy of Form 1098-T furnished to the
student, the “Instructions for Student” advise that
the institution may have reported either
payments received during the calendar year in
box 1 or the amounts billed during the calendar
year in box 2, but only the amount actually paid
in 2016 may be claimed as an education tax
credit.
The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 18
Form 1098-T New Checkbox to Indicate TIN Solicitation Compliance
• This checkbox is certifies under penalty of perjury that
the institution has complied with the standards for
obtaining the student's TIN.
• Eligible educational institutions may self-certify that they
solicited the student’s TIN and thereby can avoid using
the lengthy and time-consuming “reasonable cause”
procedures every year for abatement of “incorrect TIN”
penalties on Forms 1098-T.
The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 19
Form 1098-T
Tuition Statement
• IRS has changed the reporting amount from
“amount billed” to “amount received.”
• IRS has granted one-year penalty relief for
educational institutions that cannot timely
comply with the new statutory requirement to
report amounts received in box 1.
The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 20
Form 1099-Q (Payments from Qualified
Educational Programs) Penalty Relief for TY 2015
• On December 18, 2015, Congress repealed the rule that
section 529 accounts must be aggregated for purposes
of calculating the amount of a distribution that is included
in a taxpayer’s income.
– Thus for distributions made after December 31, 2014, the portion
of a distribution that represents earnings must be computed on a
distribution-by-distribution basis, not on an aggregate basis.
– The computation applies to each distribution from a section 529
qualified education program.
– No penalties for TY 2015 forms for failing to report on a
distribution-by-distribution basis.
The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 21
Change in Internet Security Technical Standards for FIRE System
• The IRS FIRE Text System server no longer supports
SSL 3.0 (Secure Socket Layer 3.0) as one of the FIRE
System’s Internet Security Technical Standards, and the
IRS intends to soon remove SSL 3.0 from the FIRE
Production System (the active filing system for Forms
1099, 1098, and similar information returns and Forms
1042-S).
• The removal date for the FIRE Production System will be
posted on the FIRE website, https://fire.irs.gov/.
The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 22
Change in Internet Security Technical Standards for FIRE System
• Transmitters using IE 6.0 or lower as their browser may
have problems logging in and connecting to the FIRE
System.
• The IRS says that in most situations the following steps
will allow a transmitter to connect and upload a file:
– In IE, Go to Tools>Internet Options>Advance
– Scroll down and find Security
– Uncheck both SSL 2.0 and SSL 3.0 Check TLS 1.0, TLS 1.1,
TLS 1.2 and select “Apply”.
The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 23
Form 1099 Compliance Tips 1. Assume all payees and payments are
reportable unless you can establish an
exception to reporting.
– Payee types that are exempt:
• Government and tax-exempt payees
• Corporations
– No corporate exemption for medical or legal services
providers; no corporate exemption for Form 1042-S reporting
– Payment types that are exempt:
• Goods purchases
• Non-fixed and determinable, annual or periodical income
(e.g., payments to compensate for property damage)
The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 24
Form 1099 Compliance Tips 2. Obtain Forms W-9 with U.S. TINs from almost all of
your U.S. vendors. – You can exclude government agencies (particularly difficult to
try to get a Form W-9 from a federal government agency; state and local governments might not be as problematic), well known tax-exempt entities (e.g., American Red Cross, American Humane Society, Easter Seals, etc.), and goods suppliers.
– Ask all corporations for Form W-9
• Do not exempt a corporation from reporting without a Form W-9
establishing the exemption
• You need the documentation for certain FATCA purposes, and
because there’s no corporate exemption for medical or legal
services providers, but it’s easier just to ask all of them for the
form rather than make decisions on an exceptions basis.
The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 25
Form 1099 Compliance Tips
3. Institute backup withholding when required
– Payee fails to provide TIN or certify it when required;
– Payee fails to timely and appropriately respond to B
Notice correspondence.
– This is particularly important now that 1099 review is
a standard part of all employment tax audits.
– Information on depositing withheld taxes can be
found in the instructions for the Form 945.
The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 26
Form 1099 Compliance Tips 4. Make sure everyone in your organization with a hand in the
vendor file is on the same page and understands the
consequences for failing to report and withhold when
required.
– Penalties for failing to report or report correctly or timely have
significantly increased over the last couple of years; they’ve more than
doubled.
– IRS paying more attention to this issue now.
– Vendor information has to be obtained at the time the account is
opened; waiting until the time of payment to obtain info. opens your
organization to a lot of potential liability.
• Backup withholding liability (plus penalties and interest) is assessed against
the payer for failing to withhold or report when required.
The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 27
Form 1099 Compliance Tips
5. Be able to sort your domestic and foreign vendors
– Identify U.S. source reportable income paid to foreign vendors
– Document the income source for payments that are not U.S.
source income
– Withhold 30% from U.S. source reportable income, unless a
documented exception applies (FATCA certifications; ECI claim;
treaty claim)
• Obtain correctly completed Forms W-8 from vendors to which you
are making U.S. source reportable income payments when you or
they wish to eliminate or reduce the 30% withholding requirement
on ECI, FATCA and/or on Chapter 3 payments.
The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 28
Questions? Q uestions
?
Questions?
Questions?