On June 23rd the Electronic Tax Administration Advisory Committee (ETAAC) released its annual report to Congress, featuring 10 recommendations the IRS should implement. Among those recommendations is a new impetus for the IRS to further leverage 1099 information returns to reduce the annual tax gap (the difference between what the IRS is owed and what it takes in each year).

To that end, the report very prominently finds that reporting requirements for information returns, particularly Forms 1099, must be tightened. This includes a recommendation to accelerate the filing deadline for Forms 1099 to January 31st. Currently the Form 1099-NEC has to be filed by January 31st, however other 1099's do not. For instance the 1099-MISC does not have to be filed until the end of February (paper) or March (electronic) or even later (if you take advantage of available extensions). In particular ETAAC recommends that the IRS accelerate the filing deadline for Forms 1099-R (Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts) and 1099-K (Merchant Card and Third-Party Payments) returns from March 31st to January 31st.

This report is also advocating that the IRS implement additional authentication steps during the 1099 filing process before accepting information returns. Needless to say, such a step can dramatically increase the time you will need to set aside toward filing 1099's each year. To this end, the IRS plans to use a new system to authenticate users of the 1099 Platform. This means that a person filing on behalf of a business must authenticate themselves and demonstrate that they have authority to act on behalf of the business. Hence the additional administrative burden - albeit towards the goal of cutting down on fraud that can impose its own costs.

As part of this there is a major push going on right now that involves supplementing the 20 year old FIRE system of e-filing with a new web based 1099 platform. Remember, FIRE is a web-based portal for bulk file uploads of Forms 1099 that has existed for over two decades. Payors who file 250 or more Forms 1099 each year must use FIRE. Thus, the focus of the new 1099 Platform is on adding a user-friendly tool for lower-volume filers. The new 1099 web portal is a good thing and will be very helpful for small and medium sized businesses and other such filers. The system will have inline error check capability at the launch time and will have functionality that allows the pre-population of data by 2024. These two features will enable users to correct or avoid errors some basic mistakes before filing and should help to ensure that the payees receive the correct information returns the first time. The IRS also intends the system to allow pre-population of forms with prior year data. These two features will enable users to correct or avoid errors – such as mistyped names, social security, or tax id numbers – before submission. These tools help to ensure that taxpayers receive the correct information the first time. Fewer taxpayers will experience the burden of seeking a corrected 1099 during the filing season or later. We are pleased to see that IRS plans that the Platform will allow file uploads for multiple Form 1099s when the Platform is launched. This feature will help taxpayers who use accounting software or electronic spreadsheets more easily maintain their business records.

Moreover, ETAAC also is recommending the IRS is increasing the scope and timeliness of sharing 1099 information reported with state level regulators. Again, the focus here is not just on 1099's but the Forms 1099-R and 1099-K more specifically. ETAAC recommends the IRS research with states the benefit of collecting both the federal and state filing information in a single submission and passing the state information along to states that have a 1099 filing requirement. This would dramatically increase the likelihood of coming under a state level audit for mistakes made in 1099 reporting. This is especially true because the report's enhanced focus on increasing the acceptance of e-filed returns.

Needless to say, these are just some of the big changes in the works. Stay tuned for more!