It appears that there are more notices being issued to taxpayers regarding a potential mismatch with a 1099 that was filed.
This increase in correspondence might be the result of taxpayers responding to Two Simple Questions Taxpayers Must Carefully Answer This Year. The two questions are:
“Did you make any payments that would require you to file Form(s) 1099?”
“If “Yes”, did you file or will you file all required Forms 1099?”
Here are 4 Easy Steps to Respond to an IRS Notice with a 1099 Mismatch:
1) Read the Notice
I know it sounds a little silly to remind you to do this. These particular notices however are really not written very well. You really need to understand what your potential responsibility and obligations are before you make any more payments to this party in question. Failure to properly comply with the backup withholding rules mentioned below will make the payor subject to the tax that should have been withheld plus penalty and interest.
2) Review Your Files
You should have a copy of the 1099 you issued that is in question. Compare what you filed with what is on the notice. Additionally you should have Form W-9, Request for Tax Identification Number and Certification, in your file. This form will show the name, address, type of entity and tax identification number (“TIN”) or social security number. This form is not sent to the IRS. You merely need to maintain a copy of this form in your files. The person issuing the W-9 will certify the information under penalty. Caution needs to be exercised when preparing the 1099’s. These are machine read or scanned documents. If they are not filed correctly, it will likely cause correspondence from the IRS. When preparing 1099’s use Courier print type, a 12 font size and black ink.
3) Determine if Backup Withholding is Required
The current backup withholding rate is 28%. This is really a type of income tax withholding for independent contractors. As the payor, you would need to do the backup withholding if you failed to receive the correct TIN in the required manor. In other words, if you did not receive a W-9 you would need to do the backup withholding. Additionally you would be subject to backup withholding if the IRS notifies the payor that the TIN is incorrect.
4) Contact Your CPA if Needed
You may be able to handle the response, if any, that is needed. If not, or you aren’t sure, contact your CPA. They should be able to guide you through this process as they likely have experience with it.
Have you received an IRS notice about a potential mismatch with the 1099 issued?