IRS reveals major weak spots in companies’ year-end process

Every year, IRS puts out a roundup of ways to improve processes for various finance functions, including your A/P department. 

That roundup, in the form of the Information Reporting Program Advisory Committee (IRPAC)’s annual report, outlines all the weak spots in IRS processes and changes that could improve them.

It all sounds well and good. The problem is, you know getting those changes approved and implemented can take a loooooong time.

But if your A/P team knows the weak spots IRS has identified, it can make changes to combat them this year-end.

Staying one step ahead

Here are four issues IRS sees A/P facing now and how your team can avoid them:

1. Slow e-filing. For efficiency and security, IRS encourages companies to use its FIRE System to file forms electronically. But in years past, the system’s been known to fail during peak times when lots of people are using it at once.

Your team will want to stay ahead of those peak times (e.g., Jan. 31, March 31) so you don’t have to worry about missing deadlines and incurring penalties if the system crashes. Even having A/P file forms just a week earlier can help.

2. 1099-MISCs with nonemployee compensation (NEC). Your A/P team knows that 1099s with NEC are due Jan. 31, but others aren’t due until March 31. (Fortunately, IRS has recognized this is burdensome and hopes to reinstate a separate form, called 1099-NEC, in the future.)

For now, remind A/P that if your company has to file any 1099s with NEC after Jan. 31, they have to separate submissions of 1099s with NEC from 1099s without NEC.

Here’s why: IRS has said it may treat all 1099s in a combined submission as subject to the penalty for failure to file by Jan. 31 (even if some of those forms might not be due until months later). That makes separate submissions essential to avoiding costly fines.

3. New backup withholding rules. Due to the Tax Cuts & Jobs Act, the backup withholding rate dropped from 28% to 24%, leaving many companies with questions. (The good news is, IRS just recently provided some new guidance. See Publication 1281, Backup Withholding for Missing and Incorrect Name/TIN(s), for more information and FAQs.)

Another message to pass on to A/P: IRS has clarified that if your company computed Tax Year 2018 backup withholding at a 28% rate, it doesn’t need to refund payees for overwithheld amounts. In other words, your staffers don’t have to waste any precious time backtracking.

4. TIN theft and 1099 fraud. As fraud becomes more prominent year after year, IRS believes companies need more ways to report it – and penalty relief so you don’t get dinged if A/P files corrected returns late due to fraud.

This year-end, tell A/P to keep an even closer eye out for incorrect TINs. Your staffers will definitely want to take advantage of IRS’s TIN matching tool and have Form 14039, Identity Theft Affidavit, at the ready.