TIGTA Audit Highlights Gaps in IRS Withholding Controls

Wendy Walker
May 24, 2019

The Treasury Inspector General for Tax Administration (TIGTA) reported results of a recent audit of the IRS internal controls in place to ensure that the withholding reported on information returns (i.e., Forms 1099) is accurately reflected on Form 945, Annual Return of Withheld Federal Income Tax, and that those amounts were paid to the IRS.

The results indicate that TIGTA found additional control issues with related backup withholding processes. In this sample of payers audited, TIGTA found:

  • Payers did not report Form 945 but reported withholding of $760 million on the Forms 1099 or W-2G to the recipients.  
  • Payers reported $243 million in withholding on Form 1096, Annual Summary and Transmittal of U.S. Information Returns but did not report accompanying Forms 1099 or W-2G forms to the IRS. These payers also did not report Form 945 and did not have any payments posted to their tax accounts.
  • Payers filed a Form 945 reporting withholding of more than $241 million but did not file any Forms 1099 or W-2G with the IRS.

The result is thousands of payers that either did not report or reported less backup and federal income tax withholding than they reported on 1099 information returns or Form 1096, totaling more than $1.9 billion. It is worthwhile to note that the IRS disagreed with the estimates, indicating, “The dollar value of this non-compliance is not determinable through data analysis alone.”

Recently, the IRS announced a new enforcement campaign launching from the Cincinnati office and aimed at backup withholding compliance. In its response to this TIGTA audit, the IRS confirmed that it had organized a team in 2016 to review backup withholding processes from start to finish, which has identified compliance gaps and proposed several recommendations to address them.

Best practice recommendations

Payers should consider adopting best practices to ensure that:

  • Forms 1099 and/or W-2G withholding amounts balance to the amounts reported on Form 945.  
    Note that Form 1099-R amounts are also reflected on Form 945, so those amounts should balance as well.
  • Withholding tax amounts reported on the transmittal Form 1096 balance to the withholding tax amounts reported on Form 945.
  • They invest in a modern tax solution that can organize the withholding liabilities and withholding amounts reported on Forms 1099–automating the complex process of reconciling and withholding–at both the federal and state level.

Take Action

Find out how Sovos helps companies deal with withholding and other complex 1099 reporting issues.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Wendy Walker

Wendy Walker is the principal of Tax Information Reporting solutions at Sovos. She has more than 15 years of tax operations management and tax compliance experience with emphasis in large financial institutions, having held positions with CTI Technologies (a division of IHS Markit), Zions Bancorporation and JP Morgan Chase. Wendy has served as a member of several prominent industry advisory boards. She graduated with a BS in Process Engineering from Franklin University and earned her MBA from Ohio Dominican University, in Columbus, Ohio.
Share This Post

LATAM VAT & Fiscal Reporting
May 20, 2020
Sovos Acquires Taxweb, Extends Tax Determination Capabilities in World’s Most Challenging Compliance Landscape

Earlier this month Sovos announced its second acquisition of 2020, completing our solution for Brazil with an unparalleled offering that solves tax compliance in the place where it is most challenging to do so.  Too many companies doing business in Brazil have been burdened by managing multiple point solutions for continuous transaction controls (CTCs), tax […]

ShipCompliant United States
June 4, 2020
Granholm: 15 Years of Shipping Wine…and More

How much can change in fifteen years?  It was May 2005 when the U.S. Supreme Court issued a ruling in Granholm v. Heald, one of the most consequential beverage alcohol-related cases the Court has heard. The case challenged laws in Michigan and New York that permitted in-state wineries to make direct-to-consumer (DtC) shipments to their […]

EMEA Tax Compliance VAT & Fiscal Reporting
June 4, 2020
European Court Rules Against UK on VAT Treatment of Futures Trading

In the midst of ongoing negotiations following the UK’s exit from the European Union (EU), the Court of Justice of the European Union (CJEU) has ruled that the UK has impermissibly expanded the scope of its 0% VAT rate on futures trading.  And, that this has been occurring over a period spanning more than forty […]

ShipCompliant United States
June 3, 2020
4 Steps to Get Started Shipping DtC

Direct-to-consumer (DtC) shipping of beverage alcohol products is a $3 billion dollar market that continues to grow annually. DtC shipping can be a great way to grow your business by reaching new audiences, expanding your customer base, and increasing your sales. But, before you can take advantage of this growing market, there are some steps […]

E-Invoicing Compliance LATAM Tax Compliance VAT & Fiscal Reporting
June 3, 2020
Latin America: An Update on E-Invoice Requirements

In the field of global e-invoicing and tax control, most eyes have been focused on trailblazing initiatives in Asia, as countries such as India, Vietnam and Thailand look set to introduce new reforms in this area. However, even in the home of mandatory digital tax controls – Latin America – where mandatory clearance of B2B […]

EMEA IPT Italy Tax Compliance
June 3, 2020
Italian Parafiscal Complexities

Premium tax and parafiscal compliance for insurers authorised to operate under the Italian regime can be challenging. For the experienced, it may seem that each year brings a different obligation to be met with new requirements often being introduced. There are almost always links between an upcoming year’s reporting requirements and declarations made in previous […]