form 1099 developments and compliance tips€¦ · paper forms 1099 filed with the irs.) • box 7...

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.


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.


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.


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.


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.


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.


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.


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


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.


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.”


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.

https://www.irs.gov/uac/Newsroom/National-Taxpayer-Advocate-to-Hold-Public-Forum-on-February-23-on-Taxpayer-Service-Needs-and-Preferences
































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.


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.


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.

https://www.irs.gov/pub/foia/ig/spder/SBSE-04-0915-0058.pdf








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.


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.


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.


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.


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.


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/.

https://fire.irs.gov/


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”.


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)


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.


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.


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.


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.


Questions? Q uestions

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Questions?

Questions?

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