As we approach the year-end preparation season, we’re getting asked a lot about how to close the gap in 1099 reporting compliance. From what we can understand, there are several factors at play that you need to know about and that might re-prioritize 1099 reporting from whatever system you’re using.
More specifically, the landscape looks a little like this: the IRS is putting stronger enforcement efforts in place to close the compliance delta between self-employed/independent contractors (who, the IRS suggests, only report ~80% of their income) and W2-earning employees. This will be done by increasing enforcement of 1099 information reporting rules.
The IRS has been hiring aggressively after a relatively tight lockdown on new personnel, and we understand that some of these people will be 1099 auditors. While additional auditors really doesn’t mean much in the larger IRS scheme, it does serve as a call to action to 1099 workers and their associated employers.
From a non-audit perspective, however, now more than ever before the IRS has the information and technology to govern this reporting gap with respect to 1099s. With the advent (and encouragement) of linked databases, online basis reporting will be able to expand its computerized matching system to identify situations where individuals are underreporting their capital gains and losses. To the extent that mismatches are legitimate, investigations into these matters could create a costly burden for the taxpayer and issuer of the inaccurate 1099.
The good news? Correcting this from the standpoint of a business that deals with 1099-based workers is more a matter of business process design than anything else. Reporting capability will be key, and we’re getting asked repeatedly about customizations to PeopleSoft FMS systems to help organizations stay on top of this. We’re getting hit with this so much, we’re kicking around ideas on how we can more quickly serve our clients. (Stay tuned for more as that idea develops.) This is a popular topic now, and it will only become moreso as the year draws to an end.
If you are dealing with this issue or want more information on how not to get caught on your heels, let me know. Drop me a line or leave a message in the comments.
If you’re really into this and want an ocean of subject matter on information returns, here you go. Enjoy.
(thx to Gary for the additional links)