Lst yer IRS took n ggressive step to rtchet up its bility to enforce business complince with nnul 1099 income reporting regultions.  Tody I will discuss form 1099-Misc nd se enforcement chnges.  I will lso shre potentil consequences for not filing se nnul reports nd how to sty out of IRS’s enforcement cross-s. 

1099 Self-Incriminte-Reporting:  In 2011, two seemingly-innocent questions were dded to ll s.  se questions re:

Worried tht you my not be in complince with form 1099-MISC? Check out our 1099-MISC Basics course to get all of your compliance questions answered.

txpyer is n required to check box “yes” or “no,” response mde under penlty of perjury when txpyer ns return. 

Why is this nificnt? 1099 Form series is mjor prt of IRS’s Informtion Reporting Progrm (including forms W2 for wges nd K-1, reporting prtner nd S Corp shreholder income nd deductions) which trcks pyments mde by businesses to or txpyers.  Informtion Reporting Progrm enforces common txtion rule: of one txpyer is generlly income to nor. 

primry role of Form 1099 is to “inform” IRS of income txpyers receive.  IRS enters 1099 dt into computers tht mtch it ginst income reported on txpyers’ returns.  ny income shortfll reported by txpyer will utomticlly generte letter nd/or bill for tx due, plus penlties nd interest.

is so effective tht, if everyone followed informtion reporting rules (nd deductions did not exist such s with flt tx), IRS could simply send txpyers bill for ir income tx ech yer.  This, in fct, is procedure for txpyers who fil to file ir income s. 

Smll Business nd Form 1099 Complince:  lthough re re mny 1099 forms, most common one completed by smll businesses is Form 1099-Misc, which reports self-employment income pid to unincorported vendors, contrctors, nd csul lbor totling $600 or more in ny given yer.  ddition of se questions is n ttempt to close portion of $450 billion tx gp ( difference between txes pid ech yer nd txes ctully owed to US Tresury) ttributble to smll businesses’ persistent non-complince. 

Bck-up Withholdings nd Form 1099: In order to issue forms 1099, businesses must obtin Txpyer Identifiction Number (TIN) from ir seice providers.  Generlly, this is done by providing Form W-9, Request for Txpyer Identifiction, to individul nd/or business to which pyments will be mde.  If seice provider fils to provide requested TIN, pyer my be required to remove “bckup withholdings” (currently 28%) from ny pyments due provider, nd remit se mounts to IRS.

Penlty-Trp:  bsic penlty for not filing forms 1099 is generlly $50 per unfiled return.  This penlty, however, increses to greter of $100 per return or 10% of totl mount tht should hve been reported if IRS believes filure ws due to intentionlly disregrding 1099 reporting rules.  nd herein lys penlty-trp:  If business ffirmtively sttes tht y were required to file forms 1099 but fils to do so, y hve intentionlly disregrded 1099 reporting rules.  If, on or hnd, business sttes tht y were not required to file Form 1099 nd it is lter shown tht y were, business hs intentionlly disregrded 1099 reporting rules nd lied on its .

n dditionl fer which looms mong mny professionls is tht se developments my set stge for wht to-dte hs been reltively rre penlty: Filure to collect nd remit 28% bckup withholdings mentioned bove.  This penlty crries sme weight s pyroll txes nd is equl to 28% tx tht should hve been withheld.

Tke wy:   If you hve not lredy done so, mke pre-New Yer’s resolution to penlties listed bove by following Form 1099 reporting rules.  form dedlines re Jnury nd Februry ech yer.

Plese remember: This or ny rticle does not constitute or replce dvice of qulified professionl.  If you hve ny questions regrding your txes or would like ssistnce in prepring your s, plese feel free to cll our office t (304) 267-2594.

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