Stressful fall B notice season’s here: How to handle CP2100 or CP2100A surprises from IRS

B notice season (September through October) can be a minefield for A/P pros because nobody wants the extra work of calculating 24% backup withholding or fielding calls from unhappy vendors about the reduced payments.

It should come as no surprise that the Service is monitoring what you’re doing with the Form 1099 series. If a taxpayer name and/or Taxpayer Identification Number (TIN) of a payee is missing or doesn’t match IRS records, they’ll send a CP2100 or CP2100A notice. A CP2100A means there are less than 50 returns with an issue and the CP2100 is for 50 or more returns with incorrect or incomplete information.

If this happens, the first step is to compare the taxpayer account(s) listed on the notice with your accounting records/master vendor file and, if necessary, update/correct the info.

In the Premier Learning Solutions on-demand workshop “Handling CP2100 & CP2100A Notices: Ensure Compliance, Avoid Penalties,” Audit Business Services Inc. President Pamela Fagan Shull noted that many TIN errors are triggered by not being nine digits long or containing characters other than a number.

In addition, IRS offers a TIN matching service online at irs.gov/e-services.

So what’s a B notice?

The B notice is a prescribed form that CP2100/CP2100A recipients must send to payees, vendors or contractors who didn’t furnish their legal name and TIN in a timely manner. More information can be found in IRS Publication 1281, Backup Withholding on Missing and Incorrect Name/TINs.

“You have 15 business days … from the date of the notice, or the date it was received, whichever one is later, to send an actual notice to the payee of the name and Taxpayer Identification Number mismatch, and to solicit correct documentation,” Fagan Shull said. “The payer is to include Form W-9 for the payee to fill out and may, but is not required, to send a self-addressed, stamped envelope. The IRS also specifies that the outside of the envelope must clearly be marked ‘Important tax information enclosed’ or ‘Important tax return document enclosed.'”

If a completed W-9 doesn’t arrive within 30 days after you receive the CP2100/CP2100A, you must start federal backup withholding. Keep in mind that IRS has been known to penalize companies that don’t comply and you may need to consult IRS Publication 15, Employer’s Tax Guide, for remittance instructions.

When backup withholding, include both the federal income tax withheld and the gross amount of payments made to payees on their information return.

Second B notice may be necessary

If the IRS notifies you within a three-calendar-year period that there’s a name/TIN mismatch for a payee you’ve already contacted with a B notice, then another B notice needs to be sent within 15 business days (but don’t include the W-9).

The second B notice requires the payee to contact IRS or the Social Security Administration and includes detailed instructions the payee must follow.