If “Rev. Proc. 2016-55” doesn’t mean much to you at first, just wait a moment. It’s likely to jump a number of slots on your “must watch” list.
That’s because IRS’s Revenue Procedure 2016-55 contains the 1099 penalties your A/P department faces in 2017.
And each one packs a punch. Here’s what you’ll be up against next year:
- incorrect 1099: $260 each, with a new max penalty of $3,218,500
- 1099 corrected 30 days after the required deadline: $50, new max penalty of $536,000, and
- 1099 corrected on or before Aug. 1: $100, with a $1,609,000 max.
IRS is also taking a harder stance on intentional disregard for accuracy. If the Taxman believes a company is intentionally careless with 1099s, the company will pay the greater of $530 or 10% of the aggregate amount of what they were required to report – and there’s no maximum.
Avoiding those fines
Now that IRS is posting major penalties, getting 100% accuracy has never been more important.
Here’s how you can get it:
1. Use the IRS TIN matching tool. Despite IRS’s updates to the tool, many hesitate to use it because of the time it takes to sign up.
If you haven’t, bite the bullet. Get signed up, then check your accuracy.
2. Find an extra set of eyes. Have each 1099 reviewed by someone other than the person who prepared it.
3. Tidy your master vendor file (MVF). A recent report from Lavante found most A/P folks have little confidence in their MVF data accuracy.
That can cause problems when you’re preparing 1099s. While you’re checking the most important info during year-end, schedule quarterly maintenance into your calendar to stay accurate over time.
4. Keep records of vendor interaction. With the harsh penalties for intentional disregard, you want to have a detailed paper trail on any info vendors give you. Best to keep all correspondence regarding 1099 info, like payments or TINs, in print or in email.