If you are doing your utmost to be 1099 compliant and working to dial in your 1099 reporting for the New Year, then you should be busy right now. This extended 1099 Year-End filing prep process is the key time of the year when you should be validating your vendors and the payments made to them during 2024. The idea is to make it so that filing season goes as smoothly as possible. It is imperative that you do so if for no other reason than the IRS continues to be laser-focused on making sure 1099 reporters are doing their jobs right.

Why, you might ask, is the IRS targeting organizations like yours. It's actually quite simple. As noted in the latest IRS report (issued on October 10, 2024) regarding tax compliance, recent IRS budgets remain targeted on closing the tax gap. Just a reminder, that’s the reason 1099 compliance and reporting takes up more of your time than you would like. The tax gap is the difference between what the federal government is owed from taxpayers such a,s your organization, and what it takes in. The IRS has singled out under-reporting of income amongst businesses and corporations as among the primary reason for this gap and your need to deal with subsequent penalties.

To that point, last week The Internal Revenue Service released the tax gap projections for tax year 2022 - a detailed analysis showing the nation’s projected gross tax gap at $696 billion. Again, this reflects the difference between projected ‘true’ tax liability and the amount of tax that is actually paid on time. Though high-income filers (who are particularly prone to engage in "tax-mitigation strategies") are a key area of concern, the IRS also points out how crucial it is for Accounts Payable and Tax professionals to do their jobs right in terms of their 1099 reporting and compliance. That's because under-reporting by organizations like yours represents as much as three-quarters of that nearly $700 billion dollar gap.

The takeaway for you is to make sure you are spending your time wisely: validate those W-9's, run those vendors through the IRS TIN Matching program, and perform other such tasks that allow you to create a detailed paper trail clearly explaining why early in 2025 you will or will not choose to report payments you made to vendors in 2024. If you don't, then (and as shown by last week's IRS report) you could be facing IRS B-Notice, Penalty Notices, or Audits in the near future.