What you need to know to avoid IRS penalties in 2012.
Q: What does my association need to know about the changes to Form 1099 requirements?
A: Beginning in 2012, you will be obligated to provide a copy of IRS Form 1099 to all for-profit vendors and service providers that you pay more than $600 in a calendar year. The old exception for corporate payees no longer applies.
Likely more onerous, though, is the expansion of the requirement to cover payments for purchase of goods. Previously, only service payments triggered the reporting obligation for miscellaneous income. The expanded provision is effective for payments made after 2011, but the IRS recently invited payors to voluntarily comply with the new requirement for payments made in 2010. Failure to comply after 2011 results in a penalty of $50 per unreported payee, or $100 per form if the failure to file is intentional.
The expanded requirement will result in additional record keeping to report third-party payments. You will need to collect taxpayer identification numbers for payees and make sure you have current addresses. Many accounting software programs facilitate the collection of this information and the filing of the forms. The most serious challenge will be collecting the information on payees who receive payment in cash rather than via check, because collection of the information required for reporting tends to be more haphazard with cash payments.
Some key factors to keep in mind:
- The newly expanded requirement applies to all vendors and service providers from which you have purchased more than $600 of goods or services during the calendar year.
- Forms must be sent to the IRS as well as the vendor and service provider. Be sure you keep a copy.
Although one attempt to eliminate this requirement has already failed in Congress, after the midterm elections, Republicans leaders suggested that repeal will be part of the legislative agenda when the 112th Congress is seated in January. ASAE has continued to push for repeal in its meetings on Capitol Hill during the lame-duck session.
Make sure that you have discussed your Form 1099 obligations with your tax advisor. If you need to file more than 250 of these forms, the IRS requires that they be filed electronically. The better part of valor for an exempt organization will likely be to provide the Form 1099 to all vendors, regardless of exempt status, especially due to the penalty for noncompliance.
Jonathan T. Howe is senior partner and president of Howe & Hutton, Ltd., in Chicago. Email: [email protected]