Saturday, July 27, 2013
Should accounts payable be responsible for collecting W-9?s or should that be a function of the payroll department? A question often asked; the answer depends on the company structure and policies. What is critical is that W-9?s be collected prior to paying all independent contractors.
Best practices call for companies to establish policies regarding the payment of contractors and the receipt of a W-9. By collecting complete and correct taxpayer identification numbers prior to paying independent contractors businesses can reduce the number of CP 2100B notices and protect against fines and penalties.
The IRS is very specific regarding the businesses liability when it comes to obtaining taxpayer identification numbers. It is the businesses responsibility to get a W-9 completed prior to paying any independent contractor. If the contactor fails to provide an accurate taxpayer identification number the business is required to withhold back up withholding, which is 28% for 2013. This is referred to as backup withholding.
In Publication 1586 the fines and penalties for not having a correct taxpayer identification number are described. The penalty imposed on the business is $100 for each incorrect or missing number not to exceed 1.5 million dollars per company.
To avoid the penalty the business must comply with the instructions listed in the CP 2100 notice. In short they must request a corrected or completed W-9 within 15 days of receiving the notice. They must also keep records showing they complied with the letter. If the business can prove they did all in their power to obtain the number the IRS may waive the penalty.
There are also additional civil penalties the IRS can impose for missing or incorrect taxpayer identification numbers.
This is not an area to take any risks. If you have received a CP 2100B notice then make sure you have complied with all the requirements. If the notice requires backup withholding then follow the guidance. If you would like more information on to how met the requirements of CP 2100B notices then call Gary at 615-542-1919 or send an email to
Gary@IlluminareGroupInc.com.
IRS CIRCULAR 230 ? DISCLOSURE NOTICE: IRS Circular 230 regulates written communications about federal tax matters between tax advisors and their clients. To the extent the preceding correspondence and/or any attachment is a written tax advice communication, it is not a full ?covered opinion?. Accordingly, this advice is not intended and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS regarding the transaction or matters discussed herein.