Each year, the IRS sends B Notices in the form of IRS Notice CP2100 and CP2100A and P Notice in the form of IRS Notice 972CG to Form 1099 filers. These Notices are sent to Form 1099 filers when they provide a name and taxpayer identification number (TIN) combination that doesn’t match the IRS database. This is done to rectify any discrepancies and ensure accurate tax reporting.
As organizations make lasting decisions about their work setup, be it on-site, hybrid, or remote, it’s crucial to be proactive in preventing these notices along with the associated penalties. Both types of notices necessitate a set of timely actions from your organization to avoid penalties as outlined in the Internal Revenue Code (IRC) sections §6721 and §6722.
It is important to note that the notices are typically mailed to the address that last filed a 1099 with the IRS. Be certain that your organization tracks what departments are submitting 1099 forms and validate that you have not missed the delivery of your notices as they have specific response timelines.
What is the IRS ‘B’ Notice?
An IRS “B” notice, also known as a backup withholding notice or Form CP2100, is a notification sent by the IRS to payers who have filed 1099 forms with missing or invalid Taxpayer Identification Numbers (TINs). The IRS cross-checks the 1099 forms filed by payors against its own database of name and TIN records. If discrepancies are found, the IRS sends out “B” notices to notify the payor of the issue.
The “B” notice informs the payor that they may be required to initiate backup withholding. Backup withholding involves withholding a percentage of payments to the payee and remitting it to the IRS. Generally, it is advisable to avoid backup withholding, if at all possible, therefore it is best if you follow the process to collect corrected information from your recipients and document that process for the IRS.
The notice also typically includes a listing of the missing, incorrect, or not currently issued payee TINs that need to be addressed which will aid in the process of collecting corrected information. It is crucial for the payor to rectify these discrepancies to avoid penalties and ensure compliance with tax regulations.
What is the IRS ‘P’ Notice?
A “P” notice, also known as penalties and abatement notice or Form 972CG, is a communication from the IRS proposing penalties to filers annually. These penalties are related to various issues with the filed returns. The common reasons for receiving a “P” notice include:
- Missing or Invalid Name/TIN Combinations: Filing returns with incorrect or missing combinations of names and Taxpayer Identification Numbers (TINs).
- Late Filing of Returns: Failing to file or furnish returns to the recipients or to the IRS within the specified time frame including penalties for corrected filings.
- Incorrect Formats of Returns: Submitting returns to the recipients or to the IRS in formats that do not comply with IRS guidelines or regulations.
The “P” notice outlines the proposed penalties and necessitates the filer to demonstrate “reasonable cause” to qualify for penalty abatement. The filer is also required to contact recipients to obtain updated name/TIN information to address the issues identified in the notice.
Responding to a “P” notice is crucial to avoid penalties and to provide the necessary justifications or evidence of reasonable cause for any discrepancies. It’s essential for filers to ensure compliance with IRS regulations and maintain accurate and timely reporting to minimize the likelihood of receiving such notices.
Best Practices to Minimize “B” and “P” Notices:
- Tax Identity Management: Take a proactive approach to tax identity management to minimize “B” and “P” notices. Ensure that all information returns subject to backup withholding have accurate name/TIN information to prevent issues down the line.
- Automated Proactive Processes: Implement automated proactive processes that can alert you to incorrect name/TIN information before filing with the IRS. These processes ensure that the information collected is as accurate as possible.
- Interactive TIN Matching: Utilize Interactive TIN Matching, also known as “Real Time TIN Matching,” to quickly check small amounts of data against the IRS database. This provides a live TIN status return message within five seconds of submission. Payers can submit up to 25 names and TIN combinations at a time.
- Bulk TIN Matching: Consider using Bulk TIN Matching services where companies can submit up to 100,000 names and TIN combinations for the IRS to review and verify. Ensure that the information is submitted in the correct format for the IRS to process it accurately. The response from the IRS may take up to 24 hours.
By implementing these best practices, you can effectively minimize “B” and “P” notices and maintain accurate tax identity information for smoother tax reporting processes.
5 Key Considerations for Your Business
Before the upcoming season, here are five essential considerations for your organizational processes:
- Mail Accessibility: In this era of hybrid and remote work, can you easily get IRS notices and Forms W-9 that are sent via mail?
- Secure Information Handling: Is there a safe way to handle sensitive data for remote employees, especially for IRS notice responses?
- Scanning and Signatures: Can you scan and deal with legal documents, ensuring all necessary signatures and responses are handled efficiently?
- Remote Printing and Mailing: Do you have the ability to print and mail in bulk, meeting important deadlines for document submissions?
- Technology for Coordination: Is there a tech solution to help you and your team keep track of compliance steps for each notice received and manage the process effectively?
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