The IRS is stepping up reporting scrutiny, specifically focusing on tax credits. There’s no more relevant example than the 1099 reporting changes that heightened error exposure for reporting organizations during the 2016 tax season.
Tax information reporting requirements are becoming more complex, with changing deadlines, enhanced tracking and stiffer penalties for non-compliance. This leaves financial services organizations with no room for error. In many cases, the challenges associated with ever-evolving 1099 compliance prove that in-house teams are insufficient in managing tax information reporting responsibilities.
Organizations must update their approaches to align with PATH Act changes. Failure to do so can create more severe internal 1099 reporting deficiencies at a time when the IRS wants more information – and quickly. Two primary changes are of particular importance:
Accelerated deadlines allow filers to submit more corrections. However, they must now submit these corrections within tighter, 15-day windows after a notice is received. This rapid-response timing creates even heavier burdens for in-house teams struggling to manage new IRS data requirements, such as the unique identifiers on 1042 W2 forms.
The IRS is embracing technology to improve accuracy and efficiency, and organizations have the opportunity to use the same approach. Replacing manual tasks with automation will help organizations avoid errors, minimize risk and save valuable time.
The PATH Act introduced a safe harbor for de minimis errors on information returns and payee statements this year. Specifically, filers are no longer subject to penalties under Sections 6721 or 6722 if an amount reported on the return is within $100 of the correct amount — assuming no withholding — or within $25 for amounts withheld. The safe harbor does not apply to intentional errors or an outright failure to file an information return or payee statement. This safe harbor rule ultimately means the IRS will have the resources to analyze higher value filings much more closely.
In addition, the IRS is keeping record of errors that require a correction to encourage filers to report accurately. In the event of another error filed the following year, the IRS will heighten penalties for “repeat offenders.” Fortunately, organizations using Sovos Intelligent Compliance Cloud applications have greater flexibility to focus on their businesses with confidence, knowing their filings are accurate.
With Sovos Intelligent Compliance Cloud, reporting is an efficient, real-time process.
Organizations must evaluate their current 1099 processes to determine a less tactical and more strategic approach. Penalties can now increase up to 160 percent when a deadline is missed shortly after notice, so organizations need to manage data corrections throughout the year to avoid unnecessary errors and costs – and to avoid losing clients. In-house controllers and 1099 teams now have the opportunity to transfer their daunting compliance burdens into improved, cloud-based processes.
Download our new State of Regulatory Compliance eBook to see how requirements around the world are being fueled by technology and contact us to learn how we can help transform your organization into an Intelligent Compliance powerhouse.