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

Tax Information Reporting United States
August 19, 2019
Negative Reporting – What If I Have No Records to Report?

If you have no new unclaimed property records for a particular state this filing year, does that mean you are off the hook? Well, not necessarily.   Most states want you to file with them each year. If you’ve reported in the past, they want to hear from you even in the years when you […]

Tax Information Reporting United States
August 19, 2019
To Aggregate or Not to Aggregate – There Is No Question – Not

Article written By Bill Dadmun, Records and Receipts Manager, State of Virginia   How many of you use the aggregate function when reporting?  Does it make your life easier?  Listen to this scenario and tell me if it sounds familiar.   You get a call from someone that is due $49.95 from a credit balance.  […]

Tax Information Reporting United States
August 19, 2019
Reciprocal Filing – Why You Should Proceed with Extreme Caution

This isn’t the first time I’ve blogged about the dangers of reciprocal filing, but I feel like it is a topic worth covering again for those who may have missed it. Reciprocal or exchange filing means reporting records to a state even though the last known addresses for the records are not in that state. […]

Tax Information Reporting United States
August 19, 2019
Demystifying Codes for Unclaimed Property Compliance

Have you ever been confused about which property code to use for a certain type of property? We have all been there. NAUPA, the National Association of Unclaimed Property Administrators, has a list of standard codes that you can view here starting at the bottom of page 23.   Each code is made up of two alpha […]

Tax Information Reporting United States
August 19, 2019
Due Diligence – The Way to Customers’ and States’ Hearts

Due Diligence is the act of sending out letters to your lost owners or publishing their names in newspapers.  Almost every jurisdiction has laws that require companies to perform due diligence. The most common requirement is to send letters 120 days to 60 days before your filing is due. You’ll definitely want to meet each […]