1099 Issues From the Past Resurface
By: Gardiner Thomsen CPAs | email
Recently, the IRS began sending out notices related to tax year 2008 1099 forms. These notices detail problems with 1099 forms that our clients have filed, including incorrect or missing FEIN’s, incorrect names on the 1099’s, and other issues. Generally, a penalty for each occurrence is imposed, which could potentially total thousands of dollars for the client.
Now is a good time to review your internal accounting procedures in regard to non-employees. Before issuing a check to anyone who is not an employee, you should obtain a signed W-9 form. The information contained in a W-9 form is what you use to determine if a 1099 is required, and then to prepare form 1099 if it is required.
There are several common excuses that individuals and/or businesses use in order to avoid providing a W-9 form, for example:
- “I’m a corporation, you don’t need to issue me a 1099.” In actuality, it is the W-9 form that communicates this information. You need them to provide you a signed W-9.
- “I’m with the city/county/state/federal government, you won’t need to issue me a 1099.” Every government agency, from federal to a small city, has a FEIN. You need them to provide you a signed W-9.
- “My organization is a non-profit agency. We don’t pay tax.” Every non-profit agency has a FEIN. You need them to provide you with a signed W-9.
- “I take the funds that you pay me and then pay my employees, relatives, church, etc., so you don’t need to issue me a 1099.” The person/organization that you issue the check to is the person that you need the signed W-9 for, and if necessary, the 1099 issued to. If they redistribute the funds, they will need to determine to correct course of action to take regardless of your proper reporting.
- “I’ve been doing business with you for 25 years and I’ve never provided a W-9.” Situation’s like this are the reason why the rules are changing. You need them to provide you a signed W-9.
All of these excuses are invalid. The ideal policy regarding W-9 forms should forbid the issuance of a check to anyone, member or patron, who has not provided you with a signed W-9 form. Penalties are also imposed for incorrect or illegible 1099 forms, so you must have a zero exception policy. It takes resources to try to obtain the correct information after the fact, so get a signed W-9 form prior to anyone expecting payment. If you have any questions, please contact us.
