Non-Compliance Risk in 1099 Reporting
Are you a gambler? Do you look forward to a conference in Las Vegas so you can get in a little action? How about when it comes to IRS compliance? No doubt it would be a thrill not to hear from the IRS if you veer widely outside of the lanes of IRS compliance. But what are your chances?
VendorInfo has answers in its newly published survey report 2019 Vendor Onboarding Management & Compliance Survey. The report looks at three potential consequences of compliance failure: B-notices, 972CG Notice of Proposed Penalty, and audit for review of compliance with respect to accurately documenting and validating payees.
In the first case, B-notices, a failure to include a vendor’s tax ID number (TIN) on a 1099 or a mismatch between vendor name and TIN on the 1099 will result in receiving a “B-notice.” The “B” is for backup withholding, which is required when you lack a correct TIN for a vendor. What you actually receive is a notice CP2100 or CP2100A from the IRS. Upon receipt, you have to take certain steps right away in order to either correct the problem or begin backup withholding on the vendor — an administrative task you do not want to take on if you can avoid it.
According to the survey, 44 percent of organizations have received forms CP2100 or CP2100A. That is a measure of the challenges of getting correct TINs from vendors and accurately reporting them on time. Risk of getting B-notices is high. And receiving B-notices is not insignificant. It means more work to fix what you either did not do or did not get right the first time.
As for IRS 972CG, Notice of Proposed Penalty, 21 percent or one in five organizations has received a 972CG in the last five years. These are typically for late filings, violation of filing rules (e-filing required for 250 or more 1099s) and missing or incorrect TINs. If you receive one of these, you may mitigate the proposed penalty by demonstrating your attempts to comply. That takes additional work of course. And then there’s the fine to pay, whether full or mitigated.
Finally, the survey found that 13 percent of participant organizations have undergone an IRS audit for review of compliance with respect to accurately documenting and validating payees. That’s more than one in ten!
Conclusion? Vendor compliance issues carry significant risk of additional work (read: cost), penalties (cost) and even audit (more cost). Is it worth taking time to review your vendor onboarding and compliance policies and procedural practices to try to minimize that risk? Remember the 1:10:100 rule — correction will cost ten times what it costs to get it right the first time and failure to correct will cost ten times more. Errors and failures in 1099 reporting have consequences. It is worth the work upfront to avoid increased costs later.
To learn more about vendor verification and compliance, click here to request more information or call (678) 335-5735.