When the IRS receives Forms 1099, the IRS matches the name and TIN for verification purposes. The IRS may send you a CP2100 or CP2100A, Backup Withholding Notice if the payee’s TIN is missing or obviously incorrect or the payee’s TIN doesn’t match the payee’s name. The CP2100 will include a list of payees with missing TINs and payees whose TIN and name do not match.
What do you do if you receive a CP2100 or CP2100A Notice?
What do you do if you receive a CP2100 or CP2100A Notice? The first step is to compare the listing with your records. The error could be an oversight or an error in your own records. If this is what happened, the only thing you should do is correct your records and update them. For missing or obviously incorrect TINs, determine if you are already backup withholding on payments made to that payee. If you are not, begin backup withholding immediately.
You must also make up to three solicitations for the TIN — initial, first annual, second annual – to avoid a penalty for failing to include a TIN on the information return. For incorrect TINs, compare the accounts on the listing with your business records. If they agree, send the appropriate “B” Notice to the payee. A “B” Notice is a letter to the payee asking the payee to verify his or her TIN. The specific documentation the payee must provide, will depend on whether this is the first time the payee appeared on a CP2100 list. Specific instructions are included on the CP2100 Notice. Generally, you should begin backup withholding if a payee fails to respond to a “B” Notice within 30 days. It’s important to backup withhold when required and follow the instructions on the CP2100 Notice. If you don’t, you, the payer, may be held liable for any backup withholding that was required. In addition to backup withholding, a payer may also be subject to penalties for failure to file a correct information return if information is missing or incorrect or a payer fails to issue a required Form 1099.
Penalty for failure to file a correct Form 1099
The penalty for failure to file a correct Form 1099 is $100 per Form 1099. There is also a $100 penalty for failure to furnish Form 1099 to the payee. This concludes the video portion of our webinar, and we thank you for watching. If you would like to submit a question, select the Ask a Question link under the PowerPoint window and then click Submit.
Payments Subject to Backup Withholding
Rents, non-employee compensation for services, royalties, reportable gross proceeds paid to attorneys, and other fixed or determinable gains, profits, or income payments that are reportable on Form 1099-MISC, Miscellaneous Income.
Backup withholding does not apply to wages or pension payments.
If the IRS sends you a CP2100 or CP2100A Notice indicating an incorrect payee TIN, you are required to send the “B” Notice within 15 days from the date you received it, or the date of the CP2100/2100A, whichever is later. See Publication 1281 for details. Begin backup withholding no later than 30 business days after the date of the CP2100 notice or the date you received it, whichever is later. Stop backup withholding no later than 30 days after the payee furnishes a TIN and certifies that it is correct.
What is an IRS B Notice?
A “B” Notice is when a business has mismatches on the 1099 between the name and the TIN or they have missing TINs. The business will receive a CP2100 Notice. And it will have procedures that they need to follow. And one of those procedures is for them to send a “B” Notice to the payees. The “B” Notice, it’s identified in the letter; and the “B” Notice basically is going to ask for the information from the payee, telling them that they need to provide their correct TIN to the payer. And it’s basically a form letter. And that can be found in Publication 1281.