Issues w/ getting SS#s for 1099s - Any Suggestions

[bbrownatl]

Just had a client contact me regarding getting 1099s completed. One problem! Some of the vendors (individuals) are conveniently ignoring the request to supply their respective social security number for purposes of the company issuing a 1099. As background, two guys started the company in 2009 which has several independent, commission only sales reps. I guess you could always withhold future payment until the SS# is supplied but somehow I'm sure that would cause a major commotion. Any other suggestions or thoughts? How about if the company is unable to get these?

Thanks,
Brian

[BHoffman]

Just had a client contact me regarding getting 1099s completed. One problem! Some of the vendors (individuals) are conveniently ignoring the request to supply their respective social security number for purposes of the company issuing a 1099. As background, two guys started the company in 2009 which has several independent, commission only sales reps. I guess you could always withhold future payment until the SS# is supplied but somehow I'm sure that would cause a major commotion. Any other suggestions or thoughts? How about if the company is unable to get these?

Thanks,
Brian

Hi Brian - According to the W9 instructions, there is a $50 penalty for failure to supply a requestor with a TIN. Perhaps they should resend the W9 forms and highlight that paragraph.

The company can file 1099 forms without the TINs. This will cause a response by the IRS. If they cannot get a TIN, they are required to use backup withholding. I believe the rate is 28%, but you'll need to make sure.

I would fully inform my client of the problems associated with independent contractors and urge him or her to assertively obtain the proper W9 forms from the sales reps. I would also very diligently examine whether the sales reps are actually employees who are being treated as ICs.

See Pub 1281, especially page 10.

http://www.irs.gov/pub/irs-pdf/p1281.pdf

[BOB W]

I warn all my clients to require a completed W-9 before any check can be written along with all Certificates of Insurance.

Sometime it works and sometimes it doesn't. Most time it does. I have very few problems when 1099 time comes.

[Nashville]

Persistent Problem

Mr. Brown, this is a persistent problem. Regardless of how well you impress the need of getting these numbers BEFORE writing a check, when your client wakes up in the morning he will continue to operate as he has done for years.

He will receive a letter in two years, designating which of his recipients have no number or a FICTITIOUS number, and he will be directed to withhold 28% of all payments to those recipients. There is also a $50 penalty for each information return, but I have seen many more letters than penalties.

After receiving such a letter, your client is going to wonder why you screwed up his 1099s.
If any of these recipients are still doing work for him, he is not going to want to withhold 28%. But if he fails to do so, and IRS checks him out, he is in direct violation and in big trouble.

I mention fictitious numbers. Many of these recipients have learned that the SS# is the way of tracking down unreported income, so they give you fictitious numbers to avoid scrutiny. In two years when the letter comes, they have moved to another state.

[bbrownatl]

Have sales reps set up LLC??

I have made them quite aware of this being an IRS hot button and regardless of what the contact says with these sales reps, I’ve advised him that parameters of the contract need to stand up to the IRS guidelines. He is going to have a discussion with the labor attorney who drew up the contacts. I’ve also provided the IRS guidelines to him.

Now, let me float an idea and get some input. How about if each of these sales reps set up their own legal entity (i.e. John Doe LLC) and essentially then it is the company contracting with “John Doe LLC” to sell on a commission only basis in a certain territory. In my mind, this gets around the Ind. Contractor issues. The company just started and is doing very well. I assume they could strong arm the reps this way or explain the consequences.

Thought?

Thanks again,
Brian

[Nashville]

Corporations

If a recipient is a corporation, the requirement to issue them a 1099-MISC is removed.

LLCs are not recognized as corporations by the IRS. On the face of it, setting up LLCs would not remove the requirement.

There are more sides associated with this topic, such as state recognition of corporations and entity election status, but I've given you the short answer.

[JohnH]

There's another wrinkle to this LLC situation. The W-9 version after Oct, 2007 now requires an LLC to enter a code for its tax classification. On the LLC line, if they enter "C" for corporation, we don't issue a 1099. But if they check "D" for disregarded entity or if they check "P" for partnership, we issue the 1099.

[Black Bart]

No numbers / Wrong numbers

I think the penalty problem is a bit blown out of proportion. While I have had clients fined for late filing of 1099s, I have never yet seen a penalty imposed on a client for a small number of missing or incorrect numbers.

We've all got balky, slow-acting clients who don't want to fool with such (and they have similar customers), but if you press your client each season for a couple of years, mention 28% withholding to him and have him say "28% w/h" to his clients frequently, then the half-way honest slow-pokes who intend to stay in business usually get tired of hearing from him and come across after a while. As Nash said, you'll get letters (about one a year -- nothing the first year) but many will have moved on and IRS doesn't follow up with you on it if you're not turning in any new earnings for him.

The exception is the crook who furnishes phony numbers -- IRS usually keeps after those. I had one furnish my client a bogus number the first year; second year changed it slightly and told her he accidentally transposed. She began getting IRS letters but didn't want him (a good worker) to quit, so let him work third year and then demanded correct number for 1099 in Jan. He packed up and left in the middle of the night for parts unknown. Still, she was never fined.

[BOB W]

I view this problem a time waster for us accountants. Albeit a billable issue if you want to pressure your client to do better. Money always talks, and is a good motivator.

[Black Bart]

Well,

I view this problem a time waster for us accountants. Albeit a billable issue if you want to pressure your client to do better. Money always talks, and is a good motivator.

everything in this business is a time-waster and every client has a different temperament -- we waste time on some and make up for it by breezing along with another. Money motivates alright, but you have to watch it because some customers will respond to stern club-'em-over the head billing by heading for the door and a more amiable competitor.

I'm not saying let them run completely over you, but I think it's good policy to go the extra mile and try to accommodate those who are slow but not unreasonable.

[taxea]

Issues w/ getting SS#s for 1099s - Any Suggestions

The issue date requirement gives them until 2/15. I wouldn't expect them before then.

[erchess]

Forms 1099M

This is an interesting discussion. I belong to the school of thought that says in a nutshell that anything the client does or does not do that increases the time I must spend working on that client causes a proportional increase in my fee because I charge both for my time working on the client's matter and for the preparation I put in learning to handle the matter accurately and in a reasonable amount of time. If I have all the information in an organized fashion I can set up a company in ten minutes and crank out a W-2 in 5 min or a 1099 in 3 min. I charge $45 a quarter hour for the task so if I have trouble making sense of what they give me or if every bit of information is somewhere else in a pile of disorganized papers and half of the items have to be corrected, then my fee goes up enough to keep me happy.

[JohnH]

---> I charge $45 a quarter hour for the task so if I have trouble making sense of what they give me or if every bit of information is somewhere else in a pile of disorganized papers and half of the items have to be corrected, then my fee goes up enough to keep me happy. <---

If that's the standard, I have several clients who would make you very happy...

[TaxLadyinPA]

Ditto

I warn all my clients to require a completed W-9 before any check can be written along with all Certificates of Insurance.

Sometime it works and sometimes it doesn't. Most time it does. I have very few problems when 1099 time comes.

DITTO agree ..... but it doesn't always work does it.

[taxea]

I advise my clients who use I/C's to have them fill out the W-9 at time of hiring. I let them know that if they cannot prove the expense, the IRS may deny it and this means that any payments to one person of 600 cannot be expensed on his business return. Makes them a bit more diligent in gettting the info they need and when they ask....what to do if the person won't complete the form...I say...don't hire him/her