Expert Q&A: Best Practices for 1099 B and P Notices

Note: This article on 1099 B and P notices was updated on September 14, 2021.

Sovos recently held a webinar on best practices for dealing with “B” Backup Withholding and “P” Penalty notices related to name and taxpayer identification number mismatch errors in 1099 reporting. Here, Sovos regulatory experts answer questions from webinar viewers on IRS B and P notices.

Do we have to send a B-notice to someone we will never work with again?

B-notices are sent in reaction to a CP2100/CP2100A from the IRS for 1099 reporting that has already occurred. If your organization has subsequently ceased to do business with the payee and will not file a future Form 1099 containing the erroneous payee information, you do not need to send a B-notice to the payee. However, you must document the reasons for not sending the notice in your books and records in the event of an audit.

Do we get B-notices for filing erroneous name/TIN combinations on 1099-Rs?

1099-Rs do not fall under the umbrella of B-notices, so you will not see Form 1099-R errors appear on B-notices from the IRS.

You can, however, receive a P-notice (972CG) for the 1099-. When an organization receives a P-notice for erroneous name and TIN combinations filed on a Form 1099-R, a solicitation letter must be sent to the payee requesting that they provide an updated TIN by completing Form W-9 Request for Taxpayer Identification Number. The payee must also provide a new Form W-4P Withholding Certificate for Pension or Annuity Payments to indicate the withholding tax that should be applied to future distributions from the pension or annuity account. If the payee fails to respond, the applicable withholding rates on any taxable portions of distributions that occur are:

• Eligible rollover distribution that is not paid directly to an eligible retirement plan, 20%.
• Non-periodic, non-eligible rollover distribution, 10%.

If I am not receiving IRS B or P-notices, how do I know where they are being delivered?

For large business filers, B-notices are generally mailed by the IRS in the October/November timeframe in the year in which the returns were filed. For example, for 2020 returns filed with the IRS in early 2021, filers should expect CP2100 B-notices to be issued in early October or November of 2021.

P-notices are generally mailed by the IRS 18 months after the initial date the information returns were filed. For example, for returns filed for tax year 2019 filers should expect 972CG Notice of Proposed Penalty to be issued in early August 2021.

These notices are delivered to the address of record that the IRS has on file for your organization. Make sure your information with the IRS is current and correct to receive these notices. Submit Form 8822 Change of Address to file a change of address for your organization.

To confirm whether a B or P-notice has been issued to your company for a specific tax year or to request that the IRS send a copy to you – contact:

• IRS Enterprise Computing Center at Martinsburg, West Virginia
  Customer Service Section:  Telephone 866-455-7438, M-F 8:30 a.m. – 4:30 p.m. Eastern time
  or email mccirp@irs.gov

Is it possible to receive a B notice but not a P notice?

Yes, it is possible to receive a B-notice but not a P-notice for the same failure. A filer can be selected to receive a P-notice for a variety of reasons, including whether the total number of errors reach a certain percent of overall forms filed for the same tax year, when other errors have occurred such as late filing of returns, and other reasons specific to the IRS system selection criteria for issuing notices.

It is also worth noting a P-notice CAN be received  without a B-notice preceding it. This is because P-notices encompass a broader set of errors than those covered by the B-notice process, including late filing or errors in filing procedure.

I received a CD B notice. What do I do with this?

If you received a CD that contains your B-notice, you are likely a large-volume filer where more than 250 1099s have errors. Receiving a CD is the equivalent of receiving an “electronic” copy of the B-notice, which the IRS is required to send to you if you are a large-volume filer.

To access the information on the CD, put it into the CD/DVD reader of your computer and a pop-up window will ask you to contact the IRS at 1-866-455-7438 to obtain the encryption key needed to access the information. You must provide your TIN, company name, primary or secondary contact that the IRS has associated with the taxpayer account, and your self-assigned PIN number.  Reference IRS Publication 1281 Backup Withholding For Missing And Incorrect Name/TIN(s) to guide you through this process.

What should we do if the payee sends back a W-9 in response to the B-notice with the exact same information that we already have for that payee? Would we just start backup withholding, or should we inform the payee that their information is still wrong?

Upon receiving a W-9 that lists the exact same information that was previously identified as incorrect by the IRS, maintain that W-9 as a record of the payee certifying the name/TIN combination. Do not begin backup withholding for this reason alone.

For SSN validation, what can we accept? Should we only accept an SSN card, or can we accept a W-2, letter from the IRS, paystub, etc.?

For the first B-notice, the only validation required from the payee is a completed and certified  Form W-9 . The First B-notice should outline the steps payees should take to validate their own SSN. 

For the second B-notice, there is only one option each for an individual or non-individual taxpayer to remedy the issue. For individuals, they must provide a copy of a recently issued Social Security card. The Social Security card must show a correct name/TIN combination that either differs from the combination appearing on the notice, or must show a date of issuance no earlier than six months prior to the date on the second B-notice sent. The issuance date is located on the front of the card. 

Note that ITIN and ATIN holders must obtain separate letter types to validate their identification numbers: a Letter 685C for ITIN holders, and a Letter 096C for ATIN holders.

For non-individuals, a copy of the IRS Letter 147C that is issued to the entity when the EIN was assigned by the IRS. If the entity does not have this letter, they may request a copy from the IRS directly.. 

Reference Publication 1281 Backup Withholding For Missing And Incorrect Name/TIN(s) for examples of First and Second B-notice letters.

In regard to the Form W-9, which version(s) can we accept? Should we only be accepting the latest revision of December 2014 from our customers, or can we accept older revision dates?

Generally, the most recent revision of Form W-9 should be used when soliciting information from payees. With that being said, the IRS permits the use of a substitute Form W-9 when soliciting payee information. The standards are that the substitute form must be substantially similar to the official form AND that it satisfies certain certification requirements. To review the rules relating to Substitute Form W-9s, review the instructions for Form W-9.

What is the turnaround time for the IRS to respond to a 147C request?

There is no official turnaround time for the IRS to respond to a Letter 147C request, and processing times may vary. The IRS accepts requests for faxed copies via phone at 1-800-829-4933. You can also request that the IRS mail a copy to your organization which could take anywhere from four to six weeks.