Unlucky 7: New IRS Guidance Reveals Why 1099-MISC Forms Could Be at Risk

IRS Publication 1220 contained a potentially nasty little surprise for 1099-MISC filers. The trouble centers on Box 7, the area of the form where filers signify non-employee compensation.

For tax year 2016, forms with information in Box 7 are due Jan. 31, 2018, although the IRS will extend the deadline to March 2 upon request. Forms without information in Box 7, or non-Box 7 forms, are due March 31.

Here’s the kicker: The IRS said in Publication 1220 that any late Box 7 original forms that are filed with non-Box 7 forms could cause the IRS to count all non-Box 7 forms as late, even if they are filed on time.

A Likely Story

Confused? Consider this scenario:

1. A filer sends Box 7 original forms to the IRS by Jan. 31, meeting the non-extension deadline.
2. Some late Box 7 originals trickle in after Jan. 31.
3. The filer sends non-Box 7 forms by March 31, meeting the non-Box 7 deadline.
4. In the same batch as the non-Box 7 forms, the filer sends late Box 7 forms.

Step 4 causes the problem. Because late Box 7 forms arrive with non-Box 7 forms, all forms—including non-Box 7 forms sent on time—could be considered late and subject to penalties.

Thinking outside Box 7

So, how should filers handle this potential disaster? One option, albeit a potentially painful one, is to file all forms by Jan. 31—or by March 2 for filers that ask for a deadline extension. Filing everything, both Box 7 forms and non-Box 7 forms, by the Box 7 deadline guarantees that no forms will count as having been filed late.

On the other hand, rushing to file all forms by the early deadline could lead to filing errors, which would lead to an increased number of penalties. Filers that expect a lot of corrections should file Box 7 forms by Jan. 31 (or March 2) and file non-Box 7 forms by March 31.

The real takeaway here, though, is that filers cannot file late Box 7 forms with non-Box 7 forms. Filers must file late Box 7 forms separately from non-Box 7 forms in order to ensure that non-Box 7 forms are not counted as having been filed late.

Most filers are likely to have thousands of non-Box 7 forms and hundreds or fewer of late Box 7 forms, but they must resist the temptation of filing both at the same time. Failure to understand and follow IRS guidance could lead to a raft of B notices.