By Steven D. Mercatante Esq.
Imagine if there was a tool available to help information reporters document their payees, respond efficiently to IRS B-Notices and proposed penalty notices, simplify and improve filing procedures, cut down on corrections, confirm compliance activities were performed and did all of this for free. Believe it or not, there is just such a tool; a tool which is actually an IRS program! Moreover, this very program is easy to sign up for and even easier to use.
For approximately six years now third party reporters from across the United States have been using the free IRS TIN Matching Program to lower their costs, improve their reporting efficiency and dramatically reduce both B-Notices and proposed penalty notices. If you are not currently using the TIN Matching Program this article can help you understand what it is and why it is among the easiest to use and best options available to help meet your information reporting requirements. First, we will explore what the TIN Matching program is and is not, debunking many myths that have built up around the program. Second, we will examine some of the pitfalls that can trip up would be first time users as well as how to avoid such missteps on the road to full tax reporting compliance.
What is the IRS TIN Match Program?
The IRS TIN Matching Program is an internet-based program allowing payers to verify if a payee’s name and TIN matches with what the IRS has on its records. Among other things, this program offers a great opportunity to gather correct information before submitting returns to the IRS. Although the TIN Match Program is an IRS program, it is not part of other IRS Programs, such as the B-Notice program. Thus, the information submitted to the IRS TIN Match program will in no way generate an increased likelihood of more undesirable and costly interactions with the IRS. Remember, the IRS wants you to use the program because the IRS relies heavily on the accuracy of the information third party reporters provide to match that information with individual returns and generate the maximum amount of revenue owed to the IRS each year. Thus, the IRS has a strong incentive to make sure you are using the program free of any fear of audit, penalty notice or B-notice.
The only pre-requisite for using the TIN Match program is that your organization must have filed 1099’s within one of the two most recent tax years. When you register your organization’s name and EIN the IRS will check for your organization’s EIN in its files. In addition to checking on your organization’s 1099 filing history you will also want to make sure your organization files at least one of the following Forms 1099: 1099-MISC, INT, DIV, B, OID or PATR. Incidentally, these are the forms where there may be backup withholding required and this is one of the greatest reasons to use the program. Why, you might ask? Well, it is simple. The name and the TIN entered by the payer (and provided by the payee) on the year-end 1099 must match the information in the IRS “master” TIN file. IF there is a mismatch, the B-Notice process may begin. This process will require the payer to do a tremendous amount of work to determine if the backup withholding process needs to begin. There are many potential pitfalls when processing B-Notices; it is in your best interest to get things correct before the B-Notice process begins. The TIN Match program is perhaps the best method for avoiding such B-Notices.
Because the TIN Match program is online (found at the IRS website under e-services) there are online tutorials to help figure out how to use the program. We highly recommend you visit e-services and play with the program features to gain further understanding into the program’s technical details. Once you are registered for the program, there are two ways to enter data. One, there is an “Online” or “Interactive” process whereby you long onto the IRS TIN Matching Program Web Page and process up to 25 individual requests. The second method for entering data is known as the “Batch” or “Bulk processing” method whereby you will send a computer file with up to 100,000 records. Response times to these methods of entry are stunningly quick; being virtually instantaneous under the “Interactive” method and within twenty-four hours when using the “Bulk processing” method.
The Biggest Hurdle: Initial Registration
Before you can enter and verify payee information, you will have to register. Be careful here, not just anybody can initially register. Your organization’s “principal” must register first. Who is that?