Are you a gambler? Do you look forward to a conference in Las Vegas so you can get in a little action? How about when it comes to compliance with IRS regulations? No doubt it would be a thrill not to hear from the IRS if you veer outside of the lanes of IRS compliance. But what are your odds?
VendorInfo found answers in its 2019 Vendor Onboarding Management & Compliance Survey. The survey looks at three potential consequences of compliance failure: B-notices, 972CG Notice of Proposed Penalty, and audit for review of compliance concerning accurate documentation and validation of payees.
In the first case, B-notices, a failure to include a vendor’s tax ID number (TIN) on a 1099 or a mismatch between vendor name and TIN on the 1099 will result in “B-notices.” The “B” is for backup withholding, which is required when you lack a correct TIN for a vendor. The IRS sends you a CP2100 or CP2100A notice. Upon receipt, you have to take certain steps right away, such as sending a B-notice to your vendor. The vendor must either correct their TIN within 30 days, or you must begin backup withholding on the vendor. That’s a task you do not want to take on if you can avoid it.
According to the survey, 44 percent of organizations have received forms CP2100 or CP2100A. That is a measure of the challenge of getting correct TINs from vendors and accurately reporting them on time. The risk is high, not quite one in two. Receiving B-notices is not insignificant. It means more work to fix what you either did not do or did not get right the first time.
IRS Penalty Notices
As for IRS 972CG, Notice of Proposed Penalty, 21 percent or one in five organizations has received a 972CG in the last five years. These are typically for late filings, violation of filing rules (e-filing required for 250 or more 1099s), and missing or incorrect TINs. If you receive one of these, you may mitigate the proposed penalty by demonstrating your attempts to comply. That takes additional work, of course. And then there’s the fine to pay, whether full or mitigated.
Finally, the survey found that 13 percent of participant organizations have undergone an IRS audit for review of compliance concerning accurately documenting and validating payees. That’s more than one in ten!
Vendor compliance issues carry a significant risk of additional work (read: cost), penalties (cost), and even audit (more cost). Is it worth taking time to review your vendor onboarding and compliance policies and procedural practices to try to minimize that risk? Remember the 1:10:100 rule — correction will cost ten times what it costs to get it right the first time, while the failure to correct the problem will cost ten times more. Errors and failures in 1099 reporting have consequences. It is worth the work upfront to avoid increased costs later.