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It Is Never Too Early to Prepare! B Notice Process


Contributed by Comply Exchange
May 22, 2019



Who is Impacted

Any U.S. withholding agents and payors that submitted U.S. tax or information returns with a name and taxpayer identification number (TIN) may want to consider the possibility of receiving a CP2100 or CP200A Notice from the Internal Revenue Service (IRS) later this year. 

The IRS manages the "B" Backup Withholding Program, which provides notices to payors who file certain information returns with incorrect TINs explaining that those payors must begin backup withholding. Payees may be subject to backup withholding if they do not provide the payor with their TIN in the required manner and/or the IRS notifies the payor that the TIN provided by the payee is incorrect.

What Changed

Each year, as people and organizations continue to evolve and refine their processes (nowadays it seems the focus is automation!), subtle changes that seem inconsequential may impact your tax and information return reports. New data management systems, updated platforms, and other implementations likely feed into the tax reporting systems. Now that the U.S. Federal tax reporting season has ended, it is a great time to consider reviewing your "B" Notice process and running queries on your data to identify any potential for a mismatched name and TIN combination. This article highlights a few items to keep in mind during your downtime this Spring.

Name and TIN Mismatch. Payee information changes fairly regularly these days with new names, addresses, and sometimes even new TINs. Surely, you have a process for making these updates both to your internal books and records. Oftentimes, the issue creeps in where those updates do not trickle down to the tax and information reporting systems. Consider reconciling these informational updates with your IRS submissions this year. The IRS is already doing this. Here is how:

  • The IRS considers a Name/TIN combination incorrect if it does not match, or cannot be found, on IRS or Social Security Administration files.  The IRS expects:
    • The TIN is associated with the individual name provided.  
    • A partnership, corporation, or non-disregarded Limited Liability Company uses an Employer Identification Number.
    • An individual (with a first name on file) uses a Social Security Number (SSN).
    • A Sole Proprietor uses his or her individual name that associates with a SSN.

Consider running queries to test your data in the same way and identify where you may need to resolicit a missing or incorrect TIN.

First and Second "B" Notice. Do you have a documented process for your First and Second "B" Notices? If you receive your first CP2100 or CP2100A Notice then you must provide the payee with:

  • The First "B" Notice, and
  • A copy of Form W-9 (or acceptable substitute).

Many payors opt to include a reply envelope, but they must mark he envelope clearly to state, "IMPORTANT TAX INFORMATION ENCLOSED" or "IMPORTANT TAX RETURN DOCUMENT ENCLOSED." Be sure to have a documented process in the event this happens. 

If this is the second CP2100 or CP2100A Notice that the IRS sent you within the last three years for a certain payee, you must provide the payee with the Second "B" Notice. You do not include a Form W-9, because the prescribed IRS Second "B" Notice explains exactly what documentation the payee must provide. The same envelope rules apply as the first Notice. 

Set your calendar! Once you receive a "B" Notice, you will have 15 days from the date of the CP2100A or CP2100 Notice, or the date you received it (whichever is later), to send a "B" notice to your payee. Make sure your process is documented in the event you receive the "B" notice after the date on the notice. Further, you must begin backup withholding on all U.S. reportable payments that you make to the payee no later than 30 business days after you have received the Notice. Once you have received certification on Form W-9 or a TIN validation from the SSA or IRS, you must stop backup withholding on payments within 30 days. Do you have schedulers and timers in your calendar to support this process? Be sure to include first and second annual solicitation processes, required follow-up, and reminders to start or stop backup withholding.

Undeliverable Mail. Do you have a process for undeliverable mail? If you are unable to deliver a "B" Notice to your payee, you must begin backup withholding. Continue good faith efforts to obtain a correct address for your payee, so that you can deliver the Notice accordingly. If you are unable to contact your payee, the IRS suggests storing the undelivered notice in your records for at least three years. Even if your relationship with the payee was for a one-time transaction, the IRS suggests this same guidance.

Integration or Implementation of New Data Systems. If new systems impact U.S. tax and information reporting, be sure you have a seat at the table or at least access to a key stakeholder. You will want to be sure that all payee tax profile details are maintained in the new system and migrate from old systems correctly. Update processes and procedures accordingly, even though the new system may seem too far away from your business to impact you. It might!

How to Implement

Once you have some down time from reporting seasons, consider using the above items to craft a short internal special project to check in with your "B" Notice processing. Identify updates required for:

  • Processes and procedures in general or related to Forms 945 (for reporting backup withholding).
  • Have you received prior year "B" Notices? Review these payees and identify whether you have made your annual solicitation, if follow-up is required, and most importantly, have you started backup withholding?
  • Consider using the IRS TIN Matching Program. Payors of income reported on Forms 1099-B, DIV, INT, K, MISC, OID, and/or PATR may be eligible to participate in this program to verify TINs before filing. See the Resources section for a link to his program. 

Do you expect a busy "B" Notice Season? Are you doing anything to prepare now? Let us know what you are thinking in the comment section on LinkedIn or email us!


Resources

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Tags: tax | business | Internal Revenue Service (IRS) | Regulations

 

 

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