Development of Policies & Procedures
For Reportable Payees and Payments
- Ensure your regulatory Forms 1099 and 1042-S compliance with sound policies and procedures
- Learn insider secrets to develop sound policies and procedures that the IRS will commend during audits
- Avoid devastating penalties for 1099 and 1042-S filings with sound policies and procedures
- Prove your intent to comply with new 1042-S and 1099 regulations – develop sound policies and procedures immediately
The IRS has stepped up the number of audits currently being conducting and their effort to audit 100% of all organizations issuing payments to U.S. and foreign payees. With the onset of the new FATCA (Foreign Account Tax Compliance Act) regulations, onboarding payees properly(both U.S. and foreign), determining the correct federal and tax withholding and filing information returns has become more complex, which can lead to greater financial risk for non-compliance.
A 1099 and/or a 1042-S audit can lead to an examination of all payment practices including:
- Corporate and departmental policies and procedures
- Documenting U.S. and Foreign Payees
- FATCA Compliance
- Foreign Payment treaty withholding
- Backup withholding
- Withholding deposits
- Information Reporting to the IRS and states
- Payee Statements
- B-Notice Processing and Follow up
- TIN Penalty processing and Follow up
- Corrections processing and reporting
- Payee status controls
- Regulatory updates and controls
In the course of ensuring that U.S. payers comply with regulatory law and with the current economic conditions, the U.S. Treasury, IRS and Congress are challenged to enforce the current regulations; impose liabilities for failure to withhold tax, and all penalties and interest associated with failure to comply with the tax regulations that apply when issuing payments to U.S and foreign payees. Additionally, Congress continues to cope with the need for new or changes in regulatory requirements, which result in ever changing requirements.
Under an IRS audit, & even some state audits, the auditor will ask to review your corporate and departmental policies and procedures when issuing payments for; documenting payees, withholdings, deposits, reporting and controls.
How is your company’s compliance with the regulations as they pertain to properly documenting payees as U.S. or foreign? Validating the documentation Form W-8’s and Form W-9’s that you receive? Applying the correct amount of treaty/non treaty withholding on foreign payments? Chapter 3 or Chapter 4 withholding on payments issued to Foreign Payees? Backup withholding? State withholding? Filing federal and state information returns? B-Notices and TIN Penalty Letters?
Also crucial, how do your payment systems measure up in collecting all of the right information on the payee and payment so that you can comply with federal and state regulations?
Now is the time to examine your current processes and determine what procedures or changes your company needs to ensure that all business areas adhere to compliant guidelines when opening accounts and issuing payments. Improve your procedures and reduce your risks during an audit.
Your Policies and Procedures
Corporate policies and procedures are required to establish the company’s position on compliance with the regulations and internal enforcement. Departmental policies and procedures address the steps and functions that will ensure that anytime an account is opened or a payment made, that procedures are adhered to for obtaining payee TIN/EIN information, federal and state withholding is applied (if required), and that original and corrected returns have been properly filed.
As part of an information reporting audit or a compliance check, the IRS may ask to examine corporate and departmental policies and take a close look at the procedures that are followed in the process of establishing a payee/vendor account, issuing payment, withholding, reporting and ongoing tracking of payee withholding status. The IRS may examine the software or methods utilized by your company for regulatory processes and can request historical data on any of the payees and payments, payee documentation and withholding deposit history.
Establishing and enforcing up-to-date policies and procedures for any area in your company that may issue payments is critical to avoid costly penalties and liability! As part of an IRS audit, policies and procedures will be reviewed for compliance and enforcement.
IRS Compliance can assist in developing the necessary policies and procedures for both the corporate and business areas and assist in their implementation.