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W E B I N A R

1099 Corrections Refresher

S P E A K E R S

Paul Banker – General ManagerSovos Compliance

Seth Zellner – Pollster

Sovos Compliance

March 28, 2017

Proprietary and Confidential the information and materials in this document are not for use or disclosure outside of Sovos Compliance, LLC. except under express written consent.

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

Proprietary and Confidential the information and materials in this document are not for use or disclosure outside of Sovos Compliance, LLC. except under express written consent.

3 IntroductionIntroduction 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.

Introduction to the call

Paul BankerGeneral Manager

Seth ZellnerSales Engineer/Pollster

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How to handle corrections

Proprietary and Confidential the information and materials in this document are not for use or disclosure outside of Sovos Compliance, LLC. except under express written consent.

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

1099

1099

1099

Proprietary and Confidential the information and materials in this document are not for use or disclosure outside of Sovos Compliance, LLC. except under express written consent.

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

Proprietary and Confidential the information and materials in this document are not for use or disclosure outside of Sovos Compliance, LLC. except under express written consent.

7 Transmitting• Electronic 1220 vs paper 1096• Current year vs prior year rules

VS

Proprietary and Confidential the information and materials in this document are not for use or disclosure outside of Sovos Compliance, LLC. except under express written consent.

8 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

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Best Practices

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

Proprietary and Confidential the information and materials in this document are not for use or disclosure outside of Sovos Compliance, LLC. except under express written consent.

11 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

Proprietary and Confidential the information and materials in this document are not for use or disclosure outside of Sovos Compliance, LLC. except under express written consent.

12 Reconciling• Usually manual

o 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

123456 $12.51 $58.52

115587 $28.99 $18.28

155446 $845.25 $845.25

855412 $17.65

$17.65145466 $95.25 $95.25

874554 $115.01 $115.05

124447 $555.65

$555.65253397 $100.00

$200.52 546881 $1.58 $1.58

564112 $11.00 $11.00

556466 $980.73

$980.73887745 $54.23 $54.23

987654 $12.98 $12.98

654321 $17.25 $17.25

112233 $88.98 $0.00

Acct GL amt 1099 amt224568 254887 $48.99 $18.28

887985 $845.25 $845.25 445587 $17.65

$17.65123456 $95.25 $95.25

874554 $115.01 $115.05 124447 $555.65$555.65253397 $100.00

$200.52 546881 $1.58 $1.58

564112 $11.00 $11.00556466 $980.73

$980.73887745 $54.23 $54.23

987654 $12.98 $12.98654321 $17.25 $17.25 112233 $88.98 $0.00

AcctGL amt

1099 amt

989899 $17.59$58.52

554687 $39.36 $18.28

222555$845.25 $845.25

123457 $17.65

$17.65444557 $95.25

$95.25

124588$115.01 $115.05

326558 $555.65

$555.65253397

$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

Proprietary and Confidential the information and materials in this document are not for use or disclosure outside of Sovos Compliance, LLC. except under express written consent.

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

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Timeline Review

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15 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

Proprietary and Confidential the information and materials in this document are not for use or disclosure outside of Sovos Compliance, LLC. except under express written consent.

16 Correction Filings

When corrected returns are filed matters• Penalties change• Customer satisfaction considerations

Proprietary and Confidential the information and materials in this document are not for use or disclosure outside of Sovos Compliance, LLC. except under express written consent.

17

1st Corrections

2nd Corrections

Federal Reporting

1st & 2nd B-Notices

Penalty Notices

(1 year later)

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Penalty Updates

Proprietary and Confidential the information and materials in this document are not for use or disclosure outside of Sovos Compliance, LLC. except under express written consent.

19

Summary of Increase in Penalties for Failure to FileSummary 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.

Proprietary and Confidential the information and materials in this document are not for use or disclosure outside of Sovos Compliance, LLC. except under express written consent.

20 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.

Proprietary and Confidential the information and materials in this document are not for use or disclosure outside of Sovos Compliance, LLC. except under express written consent.

21 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.

Proprietary and Confidential the information and materials in this document are not for use or disclosure outside of Sovos Compliance, LLC. except under express written consent.

22

Federal Penalties Increase SummaryFailure 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– Further CAP increases in 2017

• Before August 1 – – $100 (previously $60), CAP - $1,500,000 (previously $250,000).– With 2016 Inflation increases, CAP - $1,589,000– Further CAP increases in 2017

Intentional Disregard• $500 (previously $250), NO CAP • With 2016 inflation increases, $520• Further increases in 2017

Proprietary and Confidential the information and materials in this document are not for use or disclosure outside of Sovos Compliance, LLC. except under express written consent.

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

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