The IRS issued a new report (2021-40-030) putting your 1099 backup withholding efforts on notice. The report found that, due to a lack of adequate processes, billions of dollars in underreported 1099 tax by employers were not addressed and taxpayers avoided payment of billions of dollars in backup withholding.

Overall, the report found that for Tax Year 2018 (the most recent year data in this regard is available), the IRS identified 182,075 payers that submitted 440,404 information returns for which the payee Taxpayer Identification Number (TIN) was either missing or incorrect. Yet, in spite of this the payers did not backup withhold $13.3 billion on $55.6 billion in reported income. Combine that with IRS analysis of 1099 filings identified and there is a real problem in terms of continued significant backup withholding noncompliance and employer underreporting of tax.

Please note that as a result of these findings the IRS has stood up two new groups to address reporting and noncompliance issues relating to 1099 backup withholding. This includes assigning a significant number of tax examiners to these new backup withholding groups. This is being done toward generating greater compliance on the part of those businesses that should be 1099 backup withholding and issuing associated reporting but are not.

This means that those of you in Accounts Payable or Tax reading this post (or perhaps serving as a CPA with clients who need to 1099 report) must get on top of updating your 1099 backup withholding policies and procedures and training your team members on the latest IRS changes in this regard. You must make sure that you are prepared to withstand the additional IRS scrutiny of your 1099 due diligence, reporting, and backup withholding procedures due to come.