Businesses receive IRS B notices all the time. Here’s a smart way to handle them and tips to prevent future B notices from the IRS.
Received an IRS B-Notice? You’re not the only one.
According to research, it is pretty common for businesses to receive IRS B-Notices, namely CP2100 and CP2100A. B-notices are issued to businesses when there is a discrepancy in the taxpayer identification number (TIN) and the legal name reported in the information returns.
For example, if you missed reporting a TIN or reported an incorrect TIN, you could be cited for the TIN discrepancy by the IRS and issued a B-Notice.
If you’ve been issued an IRS B-notice for the first time or continue to receive B-notices despite many attempts to correct the TINs, this guide might be of help to you.
But first, let’s get started with the basics.
What Exactly Is A TIN?
T – Taxpayer
I – Identification
N – Number
A TIN is a unique code of identification assigned by the IRS or the social security administration. Businesses are required to report their own TIN along with the payee’s TIN in the IRS information returns.
A TIN essentially allows the IRS to validate and verify the incomes received by the payee from the payer and cross-verifying the reports claimed by both parties. If the reports filed by both parties correlate, the IRS will deem the businesses to have a mutual business arrangement regulated under the tax laws of the U.S.
Now, what would happen if you reported an incorrect TIN?
Since a TIN plays such an important role in identifying, tracking, and verifying the reports, an incorrect TIN or returns with the omitted TINs are often rejected by the IRS. The IRS will also issue B-notices to businesses that have reported incorrect TINs.
What Are IRS B-Notices?
When the payer does not act on the immediate citations flagged by the IRS or when the number of forms in which an incorrect TIN was reported exceeds 50, the federal agency will proceed to issue a TIN discrepancy notice. This is usually a CP2100, which communicates to the payer that their returns have been rejected due to incorrect TINs along with a set of prescribed steps to address the issues cited.
When the payer disregards such notices, the IRS will then proceed to penalize the payer with a $270 penalty for every TIN that was reported incorrectly.
Businesses are advised to validate the TINs prior to filing to prevent B-notices and penalties.
You can lookup TINs easily with Tax1099’s real-time TIN matching
Understanding IRS B Notice: CP2100
IRS issues a CP2100 to businesses when the payer (the business) fails to report correct taxpayer identification numbers. When the business fails to address the B-notice, the IRS then proceeds to penalize the payer for willful disregard. A penalty of $270 is applied to every incorrect TIN reported by the payer and additional interest will continue to accrue until the payer corrects the incorrect TINs.
Sure, $270 may not seem like much. But if you look at the broader picture, wherein businesses usually work with hundreds of vendors throughout the year, and the compounded penalty + interest figure is pretty dreadful.
Understanding IRS B Notice: CP2100A
CP2100A is no different from CP2100 in its function.
- CP2100 is only issued to entities that have filed 50 or more information returns, while
- CP2100A is only issued to entities that have filed less than 50 information returns.
Received CP2100? Here’s What You Can Do
The IRS issues a CP2100 if your business has reported incorrect TINs in your information returns.
If the payer (filer business) receives an IRS B-notice because of an incorrect TIN furnished by the payee, the payer can send the B-Notice to the payee along with Form W-9 and request the payee to provide the corrected TIN information.
If the payee doesn’t furnish the correct TIN and legal name in the W-9 form within 30 days of issuing a Form W-9, then the payer can withhold up to 24% of the payments due to the payee as backup withholdings until the payee provides accurate information.
24% of the payment due can be withheld by the payer from the vendor payments as backup withholdings. This limit is standardized.
The backup withholdings + federal income withheld from the payments due to the vendor must also be reported on the information returns until the vendor provides the correct information.
If the payee doesn’t provide accurate TIN even after the first B-notice, continue to withhold 24% of the payments due to the vendor and send a second B-notice as received from the IRS to the vendor.
This time, do not send a Form W-9. The payee is now legally required to have their details validated by the IRS directly. The vendor will need to furnish their TIN/social security card to the IRS and let the IRS identify, validate, and verify the details per the records.
Useful Link – Instructions On Backup Withholdings For Incorrect/Missing TINs
Received CP2100A? Here’s What You Can Do
The above regime also applies to CP2100A. Withhold 24% of the payments due to the vendor until the payee provides the tax information number and legal name to you accurately. Be sure to report all the backup withholdings and federal withholdings in your information returns.
How To Prevent Receiving IRS B Notices?
The best way to ensure that you report the correct TINs in your information returns is to validate the TINs as and when you receive them from the vendor/payee through Form W-9. If, after validation, you conclude that the provided information is incorrect, you can request the vendor to provide the correct TIN and legal name until they furnish the right information.
However, the follow-up must be within reason and feasibility and if the vendor refuses to disclose the information, immediately withhold the standard percentage of payments due instead of waiting for them to get back to you.
Role Of TIN Matching
TIN Matching is the best way to prevent reporting incorrect TINs, which in turn, helps you prevent IRS B-Notices and penalty assessments.
TIN matching is essentially checking the credibility and validity of the taxpayer identification number or social security number along with the name or ‘Doing Business As’ name of the payee. TIN Matching allows you to check if the furnished information matches the IRS records, helping you understand the accuracy of the information.
Tax1099’s Real-Time TIN Matching To Prevent IRS B-Notices
Tax1099’s real-time TIN matching allows you to verify as much as 100,000+ TINs in less than a minute, saving you hours spent on manual TIN match searches. This is especially useful for businesses that deal with a large number of payees.
You can also leverage our Bulk W-9 eSolicitation manager, which enables you to send W-9 form requests to all your vendors at once and helps you keep a track of the status. Our W-9 management tool continues to send gentle reminders to your vendors until they furnish the required information and authenticate the W-9 form with their digital signature, certifying the legal information. The obtained TINs can be validated per the real-time IRS records with our TIN matching tool, giving you the needed insights for the next steps.
Tax1099’s Notice Management will further enable you to keep a track of all your IRS communications and notices in one place and get the necessary resolutions quickly within minutes.
Explore Real-Time TIN Matching
Useful Reads:
- How To Get Your Small Business Ready For 2021 1099 Tax Season?
- TIN Matching: Why the IRS isn’t as scary as you think
- Take Advantage of Tax1099’s Real-Time TIN Matching Feature
- Tax Guide For Small Business Owners – Which Form Should You Send To Employees And Contractors?
- Filing 1099 Forms In 2022? Here’s A Checklist To Help You Double-Check Everything