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INFORMATION TO ASSIST WITH COMPLYING WITH 1099 REPORTING REQUIREMENTS In 1982, Congress passed the 1982 Tax Equity and Fiscal Responsibility Act (1982 TEFRA) that required payors to withhold 28% from certain reportable payments when payees failed to provide the appropriate documentation as required under the law. Backup withholding is a tax that is imposed as a consequence of a payee's failure to provide appropriate documentation as requested by a payor, or the payee's failure to pay taxes owed to the Treasury. Taxes withheld are reported on various Forms 1099 and may be taken as a credit on the payee's tax return. To avoid the imposition of this tax, payees must be diligent in providing valid documentation to payers who will use the information received from payees to file information returns with the IRS. Information reporting has continued to evolve and become more complex. Congress seeks to use information reporting as a source of revenue to offset budget deficits as evidenced by the inclusion of certain new information reporting requirements in tax legislation. Additional new Forms 1099 are created every year as Treasury and the IRS strive to capture an increasing number of transactions in their efforts to improve compliance. The IRS is currently enforcing these rules to the letter of the law and are penalizing taxpayers by charging them 28% of the reportable payments that were not reported accurately. The IRS is also charging $250 per 1099 not provided. Below are the various types of payments subject to reporting and backup withholding and links to the IRS details on the instructions:
As always, Miller Grossbard & Associates, P.C. is here to assist you in determining if you have a reportable payment and to assist you with proper compliance of the applicable tax laws. Please reach out to us if you have any questions or would like more help on the topic above. |
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