New 1099 Q&A from the IRS: What Are the Right Answers?– August 15, 2012 by Laura White

Did your business make any payments that would require it to file Form 1099?
If yes, did your business file, or will it file, all required Form 1099s?

These are two new questions the IRS is asking on business and individual tax returns as of 2011 tax return filings. How did you answer these questions? More importantly, how should you have answered these questions? Below are a few Q&As that will help you understand the IRS’ thinking and how to remain compliant with Form 1099-MISC (1099) filings in your business.

Q. Why is the IRS suddenly asking if all 1099s have been filed?
A. The IRS has found that there is a great amount of unreported income by independent contractors. The IRS believes if all required 1099s are actually filed, independent contractors will report more of their income on their tax returns.

Q. Under what circumstances is a 1099 required to be filed?
A. A 1099 is required to be filed if at least $600 is paid for services or rents to an individual or partnership. Fees of $600 or more paid to attorneys must also be reported on a 1099, even if the payments were made to a corporation.

Q. What are the deadlines for 1099 filings?
A. The 1099s must be given to the service provider by January 31st of the year following the year payments were made. The 1099s must be mailed to the IRS by February 28th.

Q. What are the penalties if the forms are not filed timely?
A. The penalties for failure to file 1099s can be up to $100 per day.

Q. What if I don’t know if a current service provider is a corporation or not?
A. Ask the service provider fill out a Form W-9. This will tell you for certain if the provider is a corporation or not.

Q. Do I need to give Cohen & Company a 1099?
A. If you are a client and if payments made to Cohen & Company are more than $600 in a year, then yes. Contact a member of your service team for our federal ID number and other details.

Q. How do you determine if a new service provider is an individual, partnership or corporation?
A. A Form W-9 should be given to all new service providers to complete. The form will provide the name, social security or employer ID number, address and type of entity of the service provider.

Q. Should I have a Form W-9 on file for all service providers?
A. Yes. Ideally a Form W-9 should be received before any payments are made to the service provider. If you pay at least $600 to a service provider who is an individual or partnership, and you do not have a valid ID number, you are required to withhold 28% of the payment and remit it to the IRS as federal withholding. If this is not done, you may be liable to pay the 28% withholding to the IRS.

Q. Have more questions?
A. Contact Laura White at lwhite@cohencpa.com or a member of your service team to discuss your particular situation.

 

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.