In The News

IRS Offers Penalty Relief to Form 1099-K
Filers Reporting Incorrect TINs

The IRS has announced transitional penalty relief for filers reporting incorrect taxpayer identification number d information on Form 1099-K, Payment Card and Third Party Network Payments, and payee statements filed pursuant to IRC §6050W [Notice 2013-56, 9-4-13].   

The relief is available for certain errors on information returns and payee statements required to be filed or furnished in 2013 (based on payments made in calendar year 2012) as well as certain returns and statements required to be filed or furnished in 2014 (based on payments made in calendar year 2013) provided that the §6050W filer makes a good faith effort to accurately file the appropriate information return and accompanying payee statement. 

In addition, CP2100/CP2100A Notices—informing payers that payee name and TIN combinations are incorrect—will not be sent based on incorrect name and TIN combinations on Forms 1099-K due before January 1, 2014. The first CP2100 and CP2100A Notices with respect to payments subject to §6050W will be sent in late 2014 based on incorrect name and TIN combinations on Forms 1099-K filed in 2014 for calendar year 2013 payments. 

Background

The reporting requirement: IRC §6050W, added by the Housing Assistance Tax Act of 2008 (Pub. L. No. 110-289), requires a payment settlement entity (payer) making payment to a participating payee (payee) in settlement of reportable payment transactions to make an information return—filed with the IRS on Form 1099-K—for each calendar year setting forth the gross amount of such reportable payment transactions as well as the name, address, and TIN of the payee. A similar statement must be furnished to the payee setting forth the gross amount of such reportable payment transactions as well as the name, address, and phone number of the information contact of the person required to make the return.

Section 6050W applies to two types of transactions: 1) payment card transactions and 2) third-party network transactions. Note that payments made in settlement of third-party network transactions must be reported only if gross payments to a payee exceed $20,000 and the number of such transactions exceeds 200 with respect to the participating payee.   

Penalties and previous relief: IRC §6721 imposes penalties on a person for, among other things, failing to include all required information or including incorrect information on an information return; IRC §6722 imposes penalties on a person for, among other things, failing to include all required information or including incorrect information on a payee statement.

Notice 2011-89 (see PAYROLL CURRENTLY, Issue No. 11, Vol. 19) provided transitional penalty relief from these penalties for a filer reporting incorrect information on Form 1099-K and payee statements filed under §6050W. This relief was available for information returns and payee statements filed in 2012 based on payments made in calendar year 2011, and provided the filer made a good faith effort to comply with the filing requirements.

Backup withholding and previous relief: Under IRC §3406, a payer must backup withhold from reportable payments made to a payee that has provided an incorrect name and TIN  combination with respect to an account for which an information return has been filed. The IRS is required to notify the payer that the payee has provided an incorrect name and TIN combination.

The IRS notifies a payer of an incorrect name and TIN combination by sending the payer a CP2100 Notice or a CP2100A Notice, listing the incorrect name and TIN combinations reported on information returns filed by the payer. Upon receiving a CP2100 or CP2100A Notice, payers must send a copy of the notice identifying the TIN mismatch to the payee and attempt to obtain a correct TIN before beginning backup withholding (see 26 C.F.R. §31.3406[d]-5, which describes these procedures).   

Payments required to be reported under §6050W are reportable payments potentially subject to backup withholding. Section 6050W payments made after December 31, 2011, are subject to backup withholding if a payee has not furnished a correct TIN to a payer. 

Notice 2011-88 (see PAYROLL CURRENTLY, Issue No. 11, Vol. 19) postponed for one year the effective date for potential backup withholding obligations applicable to §6050W payments. Accordingly, the backup withholding requirements of IRC §3406 apply to §6050W payments made after December 31, 2012.

Penalty Relief

Since the release of Notice 2011-89, the IRS has been made aware that payers subject to §6050W reporting continue to experience greater than usual difficulty in obtaining correct name and TIN information from payees and in resolving name and TIN mismatches. Payers have requested additional transition penalty relief in order to enable them to resolve these issues.

After careful consideration of these comments, the IRS has decided to extend the penalty relief provided in Notice 2011-89. Specifically, this notice provides relief from penalties under §§6721 and 6722 for returns and statements required to be filed and furnished:

  • in 2013 based on payments made in calendar year 2012 if they have missing TINs, obviously incorrect TINs (i.e., a TIN that has more or less than nine numbers, or has an alpha character as one of the nine positions), and incorrect name and TIN combinations; and
  • in 2014 based on payments made in 2013, but only in cases where the 2013 Form 1099-K contains an incorrect name and TIN combination. Limiting penalty relief for 2013 Forms 1099-K to incorrect name and TIN combinations is warranted because more expansive penalty relief (i.e., relief from penalties for missing or obviously incorrect TINs) would be inconsistent with the payer’s backup withholding obligations, which were first effective for payments made on or after January 1, 2013.

This notice does not apply to a payer that erroneously fails to file an information return or payee statement.     

Schedule for CP2100/CP2100A Notices

Payers have asked for guidance regarding when the IRS will begin sending CP2100/CP2100A Notices with respect to Forms 1099-K.

Accordingly, this notice informs payers that the IRS will not issue CP2100/CP2100A Notices based on incorrect name and TIN combinations reported on Forms 1099-K due before 2014. The IRS will begin sending CP2100/CP2100A Notices with respect to Forms 1099-K in late 2014. These CP2100/CP2100A Notices will be based on incorrect name and TIN combinations reported on Forms 1099-K required to be filed in 2014 for calendar year 2013 payments.

CP2100/CP 2100A Notices are not necessary to trigger backup withholding if the payee either did not provide a TIN or provided an obviously incorrect TIN. Payers should continue to backup withhold on calendar year 2013 payments to payees who failed to provide a TIN or who provided an obviously incorrect TIN.    




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