Civil Penalty Notices from the IRS

By: Chuck Telk, CPA, Partner|  email

The IRS continues to send out notices to cooperatives, indicating a problem with EIN’s and SSN’s on 1099’s issued for prior tax years. If not handled in a timely manner, these will eventually result in a penalty assessment, and in some cases, a direct levy of funds.

If you receive any IRS correspondence, please promptly forward them to our Des Moines office. In the case of these proposed potential penalty assessments, simple corrective action can usually avert the assessment of the penalty. Corrective action includes sending the patron or recipient a “B” notice and a W-9 form, which must be done within 15 days of the date of the IRS notice. The B notice must ask the patron or recipient to legibly complete the W-9 and return it to the cooperative. The notice must threaten back-up withholding if the W-9 is not returned to the cooperative. The B notice must be addressed to the patron or recipient identified by the IRS letter. Because of this, a generic letter is not sufficient.

With our response to the IRS, we will include 2 copies of these B notices along with a description of the remedial action taken. This is the prescribed IRS action to take to avoid the imposition of the penalty. In my experience, it works about 50% of the time. Further action is often necessary, including additional correspondence as well as direct telephone calls to the IRS, in some cases. While frustrating, persistence will pay off resulting in no assessment of penalty, and in such cases where a levy has been applied, the seized funds will be refunded. The best chance for a favorable outcome in the least amount of time is to forward any IRS correspondence to our Des Moines office, attention: Chuck Telk, upon receipt.