New IRS Program Increases Focus on Backup Withholding

Paul Ogawa
April 10, 2019

In a recent presentation at the American Payroll Association’s Capital Summit in Washington D.C., IRS Director of Examination Operations and Specialty Tax Daniel Lauer announced upcoming changes to the way the IRS monitors and manages backup withholding in relation to Forms 1099. After reviewing feedback and anecdotal evidence from its income tax agents and tax compliance officers, the IRS plans to increase the scrutiny it pays to backup withholding issues using information already at its disposal.

In its current form, backup withholding generally applies when a recipient fails to provide a Taxpayer Identification Number (TIN), a mismatch occurs between the name of the filer and TIN the filer provides, or when the recipient is liable for taxes relating to interest and/or dividend payments or distributions. In its role, the IRS enforces compliance efforts by sending notices when a backup withholding event occurs and issues penalties as appropriate.

IRS to address withholding inconsistencies 

After this new withholding enforcement program is established out of the agency’s Cincinnati campus, the IRS will take a more active role in addressing withholding inconsistencies. Using Forms 1099 with missing or obviously invalid TINs, backup withholding amounts that are not reconciled with Form 945 filings, and failed backup withholding in connection with a B-notice recipient, the IRS will be able to identify payers who appear to be out of compliance and take action to remedy the inconsistencies.

The IRS acknowledges that compliance is an evolving process and recognizes that administering such a program will be challenging. The burden of pursuing gaps in backup withholding compliance is significant and requires dedicated resources. The intent of this program is to meet compliance standards and minimize those burdens in the years to come.

Details on this program will be forthcoming through official IRS channels.

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Paul Ogawa

Paul Ogawa is a Senior Regulatory Counsel at Sovos Compliance. As part of the Regulatory Analysis team, his main areas of focus are state and federal tax withholding, the Affordable Care Act (ACA), and Canadian tax information reporting. Prior to Sovos, Paul worked as a litigation attorney in Boston area law firms, representing clients in insurance subrogation claims, family law matters, and employment disputes. Paul is a member of the Massachusetts Bar, earned his B.A. from Brandeis University and his J.D. from the Suffolk University Law School.
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