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Get ready for new Form 1099 reporting requirements

The IRS is having taxpayers perform a self-audit regarding their Form 1099 filing requirements and report their findings.

The Internal Revenue Service has added a two-part question to the 2011 business and individual income tax returns requiring taxpayers to disclose certain information regarding the filing of Form(s) 1099 for their businesses. The first part of the question asks whether or not the taxpayer has made any payments in 2011 that would require them to file Form(s) 1099. The second part of the question asks that if the taxpayer did in fact make such payments, did they actually file the required Form(s) 1099.

Form(s) 1099 are information returns required to be filed by all businesses that incur certain types of reportable transactions including, but not limited to:

• Certain payments of fees and other non-employee compensation
• Interest
• Dividends
• Rents
• Royalties
• Retirement distributions
• Deferred compensation payments, and
• Gross proceeds paid to attorneys.

The payer of such payments holds responsibility for preparing these information returns and remitting copies to both the IRS and the recipient (payee) of such payments.

The due date for providing the recipient with their copy of the prepared Form(s) 1099 is January 31 of the year immediately following the year in which the income items or other proceeds were paid. The due date for filing Form(s) 1099 with the IRS, however, is February 28 of the same year in which they are provided to the recipients.

Filers face significant penalties if they fail to file correct information returns by the due date. The following is a summary of the penalties that a taxpayer could be charged with:

• $30 per information return if you correctly file within 30 days of the original filing deadline with the maximum penalty reaching $250,000 ($75,000 for small businesses) per year
• $60 per information return if you correctly file more than 30 days after the original filing deadline with the maximum penalty reaching $500,000 ($200,000 for small businesses) per year
• $100 per information return if you file after August 1 of the year in which the return is due or you do not file the information returns with the maximum penalty reaching $1,500,000 ($500,000 for small businesses) per year
• $250 per information return with no maximum if the failure to file the information returns is the result of intentional disregard of the filing requirements

If the taxpayer can prove that their failure to file was due to reasonable cause and not willful neglect, they may be able to avoid such penalties.

By having the taxpayer answer two otherwise simple questions under penalties of perjury, the IRS will know which taxpayers need to be contacted first to begin an audit of their Form 1099 filing compliance. Therefore, you should consider evaluating if your business has made any payments that would require the filing Form 1099 and if your business has met those requirements.

For more information or questions on this topic, please contact your professional at UHY LLP in Farmington Hills (248) 355-1040 or Sterling Heights (586) 254-1040 or visit us on the Web at uhy-us.com.

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