Note: This post was updated on May 22, 2023.
Though the U.S. workplace model has shifted quite a bit in the past few years, one of the few items that has stayed consistent is IRS compliance requirements associated with “B”(CP2100) and “P”(972CG) notices. As companies start implementing permanent workplace decisions whether that be in-office, hybrid or remote, it is important to proactively avoid these notices and ensure they are not overlooked. Each of these notices require your organization to take a series of actions within specific timelines to avoid being assessed penalties under Internal Revenue Code (IRC) sections §6721 and §6722.
What is a “B” notice?
A “B” notice, backup withholding notice or CP2100 is when the IRS takes the 1099s that were filed and matches those against their own database of name and taxpayer identification number (TIN) records. The IRS prepares notices to payors that have filed 1099 forms with either missing or invalid TINs annually by means of the “B” notice or CP2100. The notice states that the payor may be responsible for backup withholding and is accompanied by a listing of missing, incorrect or not currently issued payee TINs.
What is a “P” notice?
A “P” notice, penalties and abatement or 972CG is when the IRS proposes penalties to filers annually for:
- Missing or invalid name/TIN combinations filed on returns
- Returns filed or furnished to the recipient late
- Returns filed or furnished to the recipient in incorrect formats
The notice requires the filer to demonstrate “reasonable cause” to qualify for penalty abatement and to solicit recipients for upcated name/TIN information.
Five things to ask yourself about your organizational processes in advance of the upcoming season:
- With many companies offering permanent hybrid or remote work options, do you or your team still have access to receive the incoming IRS Notices via mail? What about the returned Forms W-9 from recipients you solicited?
- Is there a secure process in place to transport the sensitive personal information to the employees’ residence for researching the details and responding to notices?
- Do you or your team have scanning capabilities to return legal responses that require wet signatures or other printed correspondence?
- Do you or your team have remote mass printing and mailing capabilities so that solicitations can be generated by the due dates?
- Is there technology in place for you or your team to coordinate the details of each notice and track each step of the compliance process?
Best practices to minimize “B” and “P” notices
Taking a proactive approach to tax identity management is strongly preferred when attempting to minimize “B” and “P” notices. For information returns that are subject to backup withholding, there are automated proactive processes that can alert you when you have incorrect name/TIN information so that you can proactively work to prevent “B” notices down the line. These proactive processes ensure information collected is as accurate as possible before filing information with the IRS.
- Interactive TIN Matching, also known as “Real Time TIN Matching,” provides an opportunity to quickly check small amounts of data against the IRS database. This will provide you a live TIN status return message within five seconds of submitting. Payers can submit up to 25 name and TIN combinations at a time when using the Interactive TIN Matching service through the IRS.
- Bulk TIN Matching companies are able to submit up to 100,000 name and TIN combinations for the IRS to review and verify. You will need to submit your information in a specific format for the IRS to process it correctly to do a Bulk Tin Match. It can take up to 24 hours for the IRS to respond.
Still have questions about IRS requirements and what your business needs to stay compliant? Reach out to our team and see how we can help.