It’s the time of year when companies begin receiving CP2100 and CP2100A notices from the IRS. These notices inform the filer of missing or incorrect taxpayer identification numbers. The notices may result in penalties.
Let’s take a look at what to expect from these notices, and how to prevent notices in the future.
Why am I getting this notice?
When you file your 1099’s, the IRS runs taxpayer information through their database. The vendor-TIN comparison determines if you have filed with the correct information. The Taxpayer Identification Number and vendor name should match what the IRS has on file.
If the vendor-TIN combination is incorrect, the IRS might send you a CP2100A or CP2100. The IRS sends the CP2100A to those with 250 or fewer incorrect forms. The CP2100 is served to those with more than 250 incorrect forms. The notice includes a list of missing and incorrect TIN’s.
First, send your recipient a B-notice within 15 days of receiving a CP2100 or CP2100A. Follow the format in IRS form 1281. The B-notice will inform the vendor that you need a correct TIN. Begin backup withholding no later than 30 days after the issue date of the CP2100/CP2100A. The best way to protect yourself is to begin backup withholding as soon as possible.
Some recipients are exempt from backup withholding. If the recipient is not exempt, 28% of certain payments should be withheld. Wages and pension payments are not subject to backup withholding.
How do I prevent this situation?
Always collect a W-9 before the vendor begins work. The W-9 keeps a record of the vendor’s name and TIN. After you receive the W-9, request a TIN match. Tax1099.com offers TIN matching services. Use this service to check the vendor-TIN combination against the IRS database.
Sometimes vendors knowingly report incorrect information on their W-9. These vendors do not want their earnings reported to the IRS. This is one reason why requesting a TIN match can be important.
One of the most common filing errors occurs with small businesses. Some of these small businesses may have a DBA, a “doing business as” name. In some cases, the DBA should not be used. Rather, the filer should place the legal name of the owner on the form.
What are the penalties?
The IRS can charge penalties of up to $100 per instance for incorrect TIN information. These penalties stack on top of any penalties for late filing. The penalty for incorrect filings can be up to $1.5 million ($500,000 for a small business).
Maintain accurate W-9 information for each vendor. Verify the accuracy of a vendor-TIN match by requesting a TIN match through Tax1099.com.