1099 Corrections Refresher WEBINAR 1099 Corrections Refresher SPEAKER Paul Banker – General Manager Sovos Compliance Seth Zellner – Pollster

Agenda Introduction How to handle Best practices Messaging around corrections Timing overview Penalties

Introduction Introduction to Sovos Compliance: Introduction to the call Introduction to Sovos Compliance: +30 years experience entirely dedicated to tax information reporting. #1 private filer of 10-series forms (1099’s, 1098’s, 1042-S forms) in the U.S., annually processing over 400 million forms & more than 1 billion transactions. Helping organizations of all sizes with over 4,000 clients and serving nearly half of the Fortune 500. Paul Banker General Manager Seth Zellner Sales Engineer/Pollster

How to handle corrections

Physical copy delivery Consider lead times Print notes and messaging Transaction level detail 1099 1099 1099

Electronic delivery Reduce time and costs Can be available immediately Increase customer satisfaction

VS Transmitting Electronic 1220 vs paper 1096 Current year vs prior year rules VS

1042-S changes affecting corrections Unique identifier Number of times amended Tracking these items to become vitally important Expected to move to other form types

Best Practices

Best practices to avoid corrections Load data into processing platform more frequently Utilize the name and TIN matching service Proactively solicit for correct information

Additional best practices Perform a pilot season Reconcile forms back to source systems Reconcile withheld amounts to remittances made Update corrected records in tax system AND source system

Reconciling Usually manual Done via spreadsheet, database, napkin… Time consuming in January Finding the needle in the haystack Find ways to automate Reconcile frequently Acct GL amt 1099 amt 224568 254887 $48.99 $18.28 887985 $845.25 $845.25 445587 $17.65 $17.65 123456 $95.25 $95.25 874554 $115.01 $115.05 124447 $555.65 $555.65 253397 $100.00 $200.52 546881 $1.58 $1.58 564112 $11.00 $11.00 556466 $980.73 $980.73 887745 $54.23 $54.23 987654 $12.98 $12.98 654321 $17.25 $17.25 112233 $88.98 $0.00 Acct GL amt 1099 amt 123456 $12.51 $58.52 115587 $28.99 $18.28 155446 $845.25 $845.25 855412 $17.65 $17.65 145466 $95.25 $95.25 874554 $115.01 $115.05 124447 $555.65 $555.65 253397 $100.00 $200.52 546881 $1.58 $1.58 564112 $11.00 $11.00 556466 $980.73 $980.73 887745 $54.23 $54.23 987654 $12.98 $12.98 654321 $17.25 $17.25 112233 $88.98 $0.00 Acct GL amt 1099 amt 989899 $17.59 $58.52 554687 $39.36 $18.28 222555 $845.25 $845.25 123457 $17.65 $17.65 444557 $95.25 $95.25 124588 $115.01 $115.05 326558 $555.65 $555.65 253397 $100.00 $200.52 448756 $1.58 $1.58 112548 $11.00 $11.00 556466 $980.73 $980.73 887745 $54.23 $54.23 987654 $12.98 $12.98 654321 $17.25 $17.25 112233 $88.98 $0.00

The ½ of 1% rule Reduce your B-notice volume to ½ of 1% of your form volume Eliminate your 972CG

Timeline Review

Timelines, they are a changin’ PATH Act – Section 201 has advanced filing deadlines for a subset of information returns January 31st due date for filing Forms W-2 and 1099-MISC (non-employee compensation) Effective with returns filed for 2016 Originates from Senate Finance Committee proposals to reform the code

Correction Filings When corrected returns are filed matters Penalties change Customer satisfaction considerations

$50 per $260 per $100 per Federal Reporting 1st & 2nd B-Notices 1st Corrections $260 per 2nd Corrections Penalty Notices $100 per (1 year later)

Penalty Updates

Summary of Increase in Penalties for Failure to File Summary of Increase in Penalties for Failure to File Correct Information Returns and to Provide Correct Payee Statements (July 2015) P. L. 114-27, section 806, increased penalties for failure to file correct information returns and provide correct payee statements for information returns required to be filed after December 31, 2015. $50 per information return if you correctly file within 30 days (by March 30 if the due date is February 28); maximum penalty $500,000 per year ($175,000 for small businesses). $100 per information return if you correctly file more than 30 days after the due date but by August 1; maximum penalty $1,500,000 per year ($500,000 for small businesses). $250 per information return if you file after August 1 or you do not file required information returns; maximum penalty $3,000,000 per year ($1,000,000 for small businesses). $500 per payee statement with no maximum penalty for intentional disregard of the requirements to file or furnish a correct payee statement.

Inflation Increases for 2016 – Failure to File Increase in Penalties for Failure to File Correct Information Returns and to Provide Correct Payee Statement – Inflation Increases for 2016 Additional increases in penalties have also been effectuated for failure to file correct information returns and provide correct payee statements for information returns required to be filed after Dec. 31, 2015. Section 6721 Failure To File Correct Information Returns by the Due Date & 6722 Failure to Furnish Correct payee statements are revised as follows for 2016: $50 per information return if you correctly file within 30 days (by March 30 if the due date is February 28); maximum penalty $529,000 per year ($185,000 for small businesses). $100 per information return if you correctly file more than 30 days after the due date but by August 1; maximum penalty $1,589,000 per year ($529,500 for small businesses). $260 per information return if you file after August 1 or you do not file required information returns; maximum penalty $3,178,500 per year ($1,059,500 for small businesses). $520 per information return for intentional disregard with no maximum penalty.

Inflation Increases for 2017 – Failure to File Increase in Penalties for Failure to File Correct Information Returns and to Provide Correct Payee Statement – Inflation Increases for 2017 Additional increases in penalties have also been effectuated for failure to file correct information returns and provide correct payee statements for information returns required to be filed after December 31, 2016. Section 6721 Failure To File Correct Information Returns by the Due Date & 6722 Failure to Furnish Correct payee statements are revised as follows for 2016: $50 per information return if you correctly file within 30 days (by March 30 if the due date is February 28); maximum penalty $532,000 per year ($186,000 for small businesses). $100 per information return if you correctly file more than 30 days after the due date but by August 1; maximum penalty $1,596,500 per year ($532,000 for small businesses). $260 per information return if you file after August 1 or you do not file required information returns; maximum penalty $3,193,000 per year ($1,064,000 for small businesses). $530 per information return for intentional disregard with no maximum penalty.

Federal Penalties Increase Summary Failure to Correctly File $250 (previously $100), CAP - $3M (previously $1.5M). With 2016 inflation increases, $260 (previously $250), CAP - $3,178,500 Further CAP increases in 2017 Corrections Within 30 days – $50 (previously $30), CAP - $500,000 (previously $250,000). With 2016 Inflation increases, CAP - $529,000 Before August 1 – $100 (previously $60), CAP - $1,500,000 (previously $250,000). With 2016 Inflation increases, CAP - $1,589,000 Intentional Disregard $500 (previously $250), NO CAP With 2016 inflation increases, $520 Further increases in 2017

Fancy table Correction type 2015 2016 2017 Less than 30 days $50 Before August 1st $100 After August 1st $250 $260 Mismatched name and TIN Intentional disregard $500 $520 $530 Max penalty per EIN $3,000,000 $3,178,500 $3,193,000

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