×

Please tell us about yourself

First Name
Last Name
Company
Thank you!
Error - something went wrong!
   

Trends and Benchmarks in IRS Tax Information Reporting

Executive Summary

 

In the wake of the PATH Act, tightening deadlines and changing compliance requirements have made tax information reporting a major concern for organizations. The cost and time necessary to maintain compliance, along with lingering security concerns, are driving organizations to rethink their 1099 reporting processes.

 

Aberdeen asked survey respondents to identify their most significant concerns and challenges regarding 1099 reporting and then solicited information on how respondents were solving those problems. Several broad themes emerged:

  • Data accuracy, particularly combining data from multiple sources, is a major worry
  • Keeping pace with changes in regulatory compliance is extremely difficult
  • Respondents worried about the time and costs associated with compliance, especially as they relate to having to train employees in compliance systems and processes
  • Although consequences of noncompliance such as financial penalties or loss of reputation trailed as concerns among respondents, they remain threats to organizations that do not have well-defined compliance processes

Analyzing Leaders and Followers

Across the board, the organizations Aberdeen identified as tackling compliance successfully have undertaken two major initiatives: centralizing reporting functions and adopting automated reporting solutions.

 

Overwhelmingly, “leaders” in the Aberdeen survey report had shifted 1099 reporting processes to a single team in the organization rather than trying to execute reporting by region or business unit.

 

Centralizing reporting processes consolidates responsibility for compliance and security within a specifically defined unit and offers the entire organization improved visibility into reporting. It also promotes consistency, as the organization can execute all reporting at the same level of quality so that all stakeholders, including clients, have the same experience.

 

Along those same lines, leading organizations had automated reporting with dedicated solutions. These solutions provide functionality that automates compliance workflows. From providing current regulatory research to connecting data sources and automating filing and reporting, 1099 reporting solutions are a one-stop shop for maintaining compliance.

 

Reporting solutions enable organizations to check for errors before filing, thereby reducing potential penalties and other risks associated with noncompliance. They also enable organizations to efficiently and effectively consolidate data before carrying out reporting processes.

 

Automated solutions effectively eliminate the burden placed on employees of learning and continually updating reporting processes. Furthermore, organizations that choose to automate can effectively outsource to a third party the cumbersome task of keeping up with regulatory compliance changes.

 

The Benefits of Automation

Ultimately, centralization and automation enable organizations to address concerns about the time and costs—and the risks—associated with 1099 reporting. Leaders in the Aberdeen survey achieved impressive results in comparison to “followers,” or organizations that had not centralized and automated processes.

 

Organizations with automated 1099 reporting solutions were 81 percent more likely to have automated and updated tax compliance research and rules changes, such as changes to the reporting calendar. Further, those with automated 1099 reporting solutions were 2.5 times as likely to have full integration across the systems that contain tax-reporting data.

 

Leaders were also 2.1 times as likely to be sufficiently prepared for state withholding compliance, 2.7 times as likely to be sufficiently prepared for PATH Act compliance, and 2.25 times as likely to be sufficiently prepared for the future challenges of compliance.

 

Those numbers translate directly into return on investment in terms of cost of and time spent on 1099 reporting:

 

Percentage of filings that are accurate:

  • Leaders – 91%
  • Followers – 39%

Increase in the workload to maintain compliance over the past two years:

  • Leaders – 5%
  • Followers – 16%

Increase in the amount of audits that result in penalties over the last five years:

  • Leaders – None
  • Followers – 12%

Increase in the amount of time it takes to maintain compliance over the past two years:

  • Leaders – 4%
  • Followers – 14%

More Complexity to Come

The PATH Act has brought forth complexity in 1099 reporting that only continues to increase with states moving deadlines up and the IRS increasing penalties and providing sometimes confusing guidance on 1099 procedures.

 

With industries that have obligations to report transactions related to IRAs or the sharing economy now playing major roles in reporting, organizations that have not centralized and automated 1099 reporting processes risk not only IRS penalties but also overspending on and over commitment of resources to compliance efforts.

 

The risks involved with not handling 1099 compliance efficiently are increasing, and organizations must decide now whether to stay ahead of their peers and competitors with centralization and automation or submit to the potentially catastrophic consequences of falling behind.

 

Take Action

Sovos is far and away the leader in providing solutions that enable organizations to centralize and automate 1099 reporting processes. Learn more, or contact Sovos with questions about the survey.  

Previous Article
Point vs Scalable VAT Compliance and Reporting Solution Comparison
Point vs Scalable VAT Compliance and Reporting Solution Comparison

Businesses need to fix their operational processes and adopt new technologies - compare VAT Reporting Solut...

Next Article
VAT Compliance and Reporting Technology: A “Nice to Have” or “Must Have?”
VAT Compliance and Reporting Technology: A “Nice to Have” or “Must Have?”

New and evolving VAT compliance and audit mandates are putting a lot of pressure on businesses, making them...

Let's Connect!

Contact Us