1099 reporting: How Finance can cope with less time and higher fines

Now may be a good time to huddle with your Accounts Payable folks and make sure they have everything they need to deal with the mad rush of this year’s 1099 season.

After all, not only is this year the first time A/P will have to deal with shortened 1099 deadlines, but also the increased penalties make the stakes even higher.

The first thing you’ll want to make sure of is that everybody is aware of all the key deadlines, which are:

• Tues., Jan. 31, 2017: 1099-MISCs with amounts in box 7 are due to IRS and vendors. And this is the deadline even if you file electronically. (Note: Check the instructions for IRS-approved last-minute private carriers.)
• Tues., Feb. 28, 2017: Other 1099s are due to the IRS if filed by paper.
• Wed., March 15, 2017: Forms 1042-S are due to IRS and vendors, regardless of whether you’re filing electronically or via paper.

Also, it’s important to make sure you have e-Services in order. IRS recently started mailing letters to certain e-Service users to re-register. So if your company gets one of these letters, you’ll need to comply with 30 days or you’ll wind up getting locked out of your account.

You can read the full IRS notice here.

In addition, you’ll want to tell A/P staffers to beware of any email that prompts them to update their account. IRS has warned these notices could be a scam.

Avoiding those fines

As for the increased penalties, here’s what your firm is up against:

• incorrect 1099: $260 each, with a new max penalty of $3,218,500
• 1099 corrected 30 days after the required deadline: $50, new max penalty of $536,000, and
• 1099 corrected on or before Aug. 1: $100, with a $1,609,000 max.

IRS is also taking a harder stance on intentional disregard for accuracy. If the Taxman believes a company is intentionally careless with 1099s, the company will pay the greater of $530 or 10% of the aggregate amount of what they were required to report – and there’s no maximum.

Now that IRS is posting major penalties, getting 100% accuracy has never been more important.

As we’ve covered previously, here’s a checklist to achieve that accuracy:

1. Use the IRS TIN matching tool. Despite IRS’s updates to the tool, many hesitate to use it because of the time it takes to sign up.

If you haven’t, bite the bullet. Get signed up, and then check your accuracy.

2. Find an extra set of eyes. Have each 1099 reviewed by someone other than the person who prepared it.

3. Tidy your master vendor file (MVF). A recent report from Lavante found most A/P folks have little confidence in their MVF data accuracy.

That can cause problems when you’re preparing 1099s. While you’re checking the most important info during year-end, schedule quarterly maintenance into your calendar to stay accurate over time.

4. Keep records of vendor interactions. With the harsh penalties for intentional disregard, you want to have a detailed paper trail on any info vendors give you. Best to keep all correspondence regarding 1099 info, like payments or TINs, in print or in email.