Important Changes for Forms 1099 and 1042-S Reporting for 2018 · Pub. 1187 (For Form 1042-S)...

Important Changes for Forms 1099 and 1042-S Reporting for 2018

Marianne Couch, J.D.

COKALA Tax Information Reporting Solutions, LLC

www.cokala.com

[email protected]

http://www.cokala.com/

mailto:[email protected]

New Form W-9

Dated October, 2018

No changes to form; IRS just changed references to backup withholding rate in instructions.

Backup withholding rate was decreased from 28% to 24% as a result of tax law passed last December.

24% rate became effective 1/1/18.

Copyright 2007-2018 COKALA Tax Information Reporting Solutions, LLC 2

Automatic Extension For Forms 1099-MISC Reporting NEC Eliminated

Beginning with 1099-MISC returns that report a box 7 payment made in calendar year 2018 – returns which are due to the IRS January 31, 2019 – filers are no longer permitted to automatically claim 30 additional days in which to file these “NEC” returns.

If the filer has suffered one of five specific hardship or catastrophic events which are listed in the new regulation, the filer may request the IRS grant one 30-day extension of time to file.

1. The business suffered a catastrophic event in a Federally Declared Disaster Area that made the business unable to resume operations or made necessary records unavailable.

2. A fire, casualty or natural disaster affected the operation of the business.

3. Death, serious illness or unavoidable absence of the individual responsible for filing the information returns affected the operation of the business.

4. The information return is being filed for the first year the business was established.

5. The filer did not receive timely data on a third-party payee statement. The IRS examples of such a third-party statement are receipt of a Form 1042-S, or Schedule K-1 partner information, or sick pay statement.

Automatic 30-day filing extensions are still available for the other information returns in the 1099, 1098, 1097, 5498 and 1094/1095 series plus 1042-S, 3921, 3922 and 8027,and W-2G.

IRS has updated Form 8809 to reflect this change.


New Form 8809

The new edition of IRS Form 8809, Application for Extension of Time To File Information Returns, has been released as a final form – and is the only version of Form 8809 which the IRS will accept for extensions of the tax year 2018 information return due date (returns due to the IRS in 2019).

The new Form 8809 is designated “Rev. November 2018” in the upper left corner.

See it at https://www.irs.gov/pub/irs-pdf/f8809.pdf.


https://www.irs.gov/pub/irs-pdf/f8809.pdf

Late-Filed NEC Forms 1099-MISC

If you file Forms 1099-MISC reporting NEC after the January 31 deadline and without a hardship extension (i.e., you are filing these forms late), you must file them separately from any other Forms 1099 due and filed after January 31. If you file late Forms 1099-MISC reporting NEC with other forms due after January 31,

IRS is likely to treat all forms as filed late and issue proposed penalty notice for all of these 1099s.


Proposed Regulation Changing Paper-Filing Threshold

Currently, you may file up to 249 paper Forms 1099.

249 threshold applies separately to each type of Form 1099 and to corrections.

REG-102951-16 would aggregate the 249 threshold across all types of information returns; it would not apply separately to each type of return.

In addition, if an original return was required to be filed electronically, any correction to that return would also be required to be filed electronically.

This regulation, if passed as written, would be effective for information returns required to be filed after December 31, 2018; and for corrected information returns filed after December 31, 2018.


Pub. 1220 Updates

Test files will be accepted November 5 through 6 p.m. (Eastern) December 5, 2018.

Test files will also be accepted beginning January 2, 2019.

The FIRE system will begin accepting information return files on January 10, 2019.

The user PIN must be 10 unique numbers which can’t be in consecutive ascending or descending numerical order.

Users must set up a “secret phrase” to use in the event of having to reset a password.


Pub. 1220 Updates

Changes affecting Extension of Time files:

Because no automatic 30-day extension is available for Forms 1099-MISC that report an amount for Box 7 (nonemployee compensation, “NEC”), Document Indicator Code A has been eliminated as an option at Field Position 186 of the electronic Extension of Time layout.

The new Forms 1099-LS and 1099-SB have been added to the list of information returns for which Document Indicator Code 2 is used in Field Position 186. Form 1099-LS is “Reportable Life Insurance Sale” and Form 1099-SB is “Seller’s Investment in Life Insurance Contract.”

Change in the Combined Federal/State Filing Program:

Vermont is no longer a participating state, so state indicator Code 50 has been eliminated as an option at Field Positions 747-748 in the K Record (state totals) of the electronic file.


Pub. 1220 Updates

New record layouts/fields for Forms 1098; 1098-T; 1099-DIV; 1099-LS (new form; reportable life insurance sale); 1099-SB (new form; seller’s investment in life insurance contract); 1099-R; and 5498.


Pub. 1187 (For Form 1042-S) Updated

New efiling mandate for partnerships:

Beginning with tax year 2018, a partnership that is filing Form 1042-S is required to file electronically if it has more than 100 partners or if it is required to file 200 or more information returns for tax year 2018.

In future years, a partnership will be required to file electronically if it has more than 100 partners or if the total of Forms 1042-S it is required to file is at least 150 for tax year 2019, 100 for 2020, 50 for 2021, and 20 for tax years after 2021.

There have also been changes in record format specifications and record layouts.

Obtain Pub. 1187 at https://www.irs.gov/pub/irs-pdf/p1187.pdf


https://www.irs.gov/pub/irs-pdf/p1187.pdf

Form 1042-S

Boxes 9 and 11 have flipped

Prior Years: Box 9

Tax paid by withholding agent

Box 11 Amount repaid to recipient

Tax Year 2018: Box 9

Overwithheld tax repaid to recipient pursuant to adjustment procedures (see instructions)

Box 11 Tax paid by withholding agent (amounts not withheld) (see instructions)


Form 1042-S IRS Compliance Initiatives

Failures to withhold become tax liability of the withholding agent

Example, general rule under chapter 3: Withholding agent that cannot reliably associate a payment with valid documentation on the date of payment and that does not withhold under this section, or withholds at less than the 30percent rate prescribed … is liable … for the tax required to be withheld.

Example, chapter 4: Withholding agent that fails to report and withhold … with respect to a payment that it cannot reliably associate with valid documentation shall be liable for tax, interest and penalties.



Multi-year efforts to identify and block refunds, or credit, of foreign persons’ withheld tax, when IRS system can’t “see” where the withholding agent made tax deposit of the withheld amount reported on Form 1042-S

Notice 2015-10: an otherwise allowable claim for refund or credit made by a claimant that is the beneficial owner of a withheld payment only available to the extent that the relevant withholding agent deposited the amount withheld. Pro rata formula to calculate what portion of claimed withholding would be recognized.



November 2017, Form 1120-F Chapter 3 and Chapter 4 Withholding Campaign

Designed to verify withholding-at-source for claims of refund of withheld tax

May 2018, Forms 1042 and 1042-S Compliance Campaign

Aimed at withholding agent noncompliance with requirements to withhold tax, deposit tax, and file information returns

May 2018, Nonresident Alien Tax Treaty Exemptions Campaign

Will find incomplete or incorrect forms accepted by withholding agents resulting in improper claims of treaty benefits


Corrections Safe Harbor

For 1099s filed after 12/31/16, no correction will be required if*:

the dollar amount for a single type of payment reported on the Form 1099 was in error but within $100 of the correct amount; or

the dollar amount reported as withheld tax was in error but within $25 of the correct amount.

* Unless your payee requests a correction.

If payee requests a correction, you will have to do one.

Notice 2017-09, issued 01/2017, provides guidance on what the payee’s request (referred to as an “election”) must contain, your recordkeeping requirements for these elections, and how the payee may revoke the election. Payee may request either to:

Receive corrections for the year in which the election is furnished to you, or

Receive corrections for all years forward until payee revokes the election.

Notice 2017-09: https://www.irs.gov/pub/irs-drop/n-17-09.pdf


https://www.irs.gov/pub/irs-drop/n-17-09.pdf

De Minimis Corrections – Proposed Regulations Provide Time Frame Limitation For Recipient’s Override Of The De Minimis Rule

New proposed regulations, REG-118826-16, provide that if a payee wants to elect out of the de minimis on corrections to Forms 1099, and thereby require the payer to issue corrected 1099s despite the difference in dollar amount being no more than $100 (or a difference of no more than $25 of withheld tax), the payee must make this election no later than 30 days after the date on which the payee statement is required to be furnished to the payee – or October 15 – whichever is later. This resolves uncertainty in the earlier guidance of Notice 2017-9

(https://www.irs.gov/pub/irs-drop/n-17-09.pdf) which said, “A payee may make an election with respect to payee statements required to be furnished in the calendar year in which the payee makes the election …” and “The payor may not impose any … time limitation on the payee’s ability to request a corrected payee statement …”


https://www.irs.gov/pub/irs-drop/n-17-09.pdf

Forms 1099-MISC And 1099-K – Advance Look At Tax Year 2019 Forms And Instructions Indicates No Changes

Form 1099-MISC, reporting Miscellaneous Income, and Form 1099-K, reporting Payment Card and Third Party Network Transactions, appear set to repeat the same paper form layout and the same instructions as for 2018, for Tax Year 2019 information which will be filed to the IRS in 2020. If legislative changes were to occur the IRS would need to consider

revisions, but otherwise there’s no indication of change in these two forms other than updating the calendar year references.


Draft Forms Available

A draft of the 2019 Form 1099-MISC is posted on the IRS website at https://www.irs.gov/pub/irs-dft/f1099msc--dft.pdf and a draft of the 2019 Instructions for Form 1099-MISC is posted at https://www.irs.gov/pub/irs-dft/i1099msc--dft.pdf.

A draft of the 2019 Form 1099-K is posted on at https://www.irs.gov/pub/irs-dft/f1099k--dft.pdf and a finished PDF of the 2019 Instructions for Form 1099-K is posted at https://www.irs.gov/pub/irs-pdf/i1099k.pdf.


https://www.irs.gov/pub/irs-dft/f1099msc--dft.pdf

https://www.irs.gov/pub/irs-dft/i1099msc--dft.pdf

https://www.irs.gov/pub/irs-dft/f1099k--dft.pdf

https://www.irs.gov/pub/irs-pdf/i1099k.pdf

Worker Classification

An audit report from the Treasury Inspector General for Tax Administration (TIGTA) has led to the IRS committing to make changes in how worker classification Form SS-8 requests from gig economy workers are handled.

In addition, TIGTA’s final report has been forwarded to the Assistant Secretary of the Treasury for Tax Policy to pursue a legislative change to Section 530 so that, at a minimum, the IRS can take prospective action to enforce the law on employers who incorrectly treat workers as independent contractors.


Worker Classification and the “Gig” Economy

The “gig economy,” which generally uses web-based platforms to bring people together who need services and other people who are willing to provide those services, has made worker classification more complex.

TIGTA audited IRS activity in handling Forms SS-8 submitted by gig economy workers.

TIGTA found gig economy cases that were mishandled by the IRS due to lack of guidance or misunderstanding of rules, resulting in the IRS handlers mistakenly determining that no decision could be made on the gig workers’ cases.

To correct the serious problem of such mishandling of SS-8 worker classification submissions, TIGTA recommended that the IRS create new guidance and training for the responsible IRS functions to ensure the accurate processing and determinations of worker classification requests, including gig economy worker classification requests.

The IRS agreed with the recommendation and will create additional guidance and training for the responsible functions to ensure the accurate processing and determinations of worker classification requests, including gig economy worker classification requests.


Section 530 Relief If an employer is found to have improperly treated workers as contractors, when they

should have been treated as employees, Section 530 can protect the employer from having to pay past employment taxes for misclassified workers, if the employer had filed all 1099-MISC information returns as required and hadn’t treated substantially similar workers as employees.

Because the TIGTA audit found internal IRS misunderstanding of how Section 530 relief affects individual workers, TIGTA recommended that the IRS Deputy Commissioner, Services and Enforcement, should work with the U.S. Department of Treasury Office of Tax Policy to pursue a legislative change to Section 530, including that, at a minimum, the IRS can take prospective action to enforce the law on employers who incorrectly treat workers as independent contractors.

Legislation to alter or repeal Section 530 has been introduced in Congress several times in the last decade but never been enacted.

Now, however, the IRS has agreed with the recommendation and will provide a copy of TIGTA’s final report to the Assistant Secretary for Tax Policy to pursue a legislative change to Section 530.

See audit report 2018-30-077, Improvements to the SS-8 Program Are Needed to Help Workers and Improve Employment Tax Compliance,at https://www.treasury.gov/tigta/auditreports/2018reports/201830077fr.pdf.


https://www.treasury.gov/tigta/auditreports/2018reports/201830077fr.pdf

IRPAC Recommendations To IRS – Annual Report Covers Wide Range Of Practical Improvements For Burden Reduction And

Administrative Simplification

The Information Reporting Program Advisory Committee to the IRS Commissioner (IRPAC) held its annual public meeting this week and released its annual report.

The Report is available at: https://www.irs.gov/pub/irs-pdf/p5315.pdf.

Electronic signature on the IRS W-9.

IRPAC strongly continues to recommend for 2018 that the IRS extend electronic signature capability to the Form W-9.

Separate Form 1099-NEC.

IRS should consider implementing Form 1099-NEC (with a January 31 due date) so that nonemployee compensation can be reported on that form, separately from Form 1099-MISC which reports other income items with a later due date.


https://www.irs.gov/pub/irs-pdf/p5315.pdf

IRPAC Report

Don’t change filer’s address in the Business Master File unless the filer requests the change.

This decades-old problem continues to be a serious problem and IRPAC continues strongly to recommend procedures that require positive affirmation of a change of address from a corporate filer before updating the BMF.

Numerous scenarios result in addresses being changed without the entity’s knowledge; IRS then uses the incorrect addresses to communicate B-Notices, 972CG Penalty Notice and other such notices containing personal identification information of underlying clients of the corporate filer.

Eliminate Form 8233.

IRPAC recommends that Form 8233 be eliminated, and the process to achieve treaty benefits for personal services performed in the U.S. be streamlined and blended into existing Forms W-8.


IRPAC Report

Improve the Combined Federal/State Filing Program.

Make CF/SP information returns available to the states earlier in the year and on a more frequent, or even real-time, basis. States have pulled out of Combined filling (either totally or for all returns that report state income tax withholding) because the IRS doesn’t forward the data to states until long after state income tax returns have been filed. An improved Combined program with much greater state participation would reduce the burden of filers presently having to file to numerous separate state tax agencies.

Table of treaty rates for pension distributions.

Provide guidance on specific countries with which the U.S. has an income tax treaty where pension payments are subject to a specialized treatment depending upon the type of payment; add this to the online Tax Treaty Tables.

Footnotes can highlight that the rate of withholding may vary depending upon whether the pension payment is a periodic payment or a lump sum distribution.


IRPAC Report

Gross proceeds reporting, FATCA. IRPAC requests a delay in the requirement to deduct and withhold tax on

gross proceeds and foreign pass-through payments for two years following the issuance of guidance defining the terms.

Add a standardized field on Forms W-8 for the Reasonable Written Explanation for lack of foreign taxpayer identification.


Questions?


Important Changes for Forms 1099 and 1042-S Reporting for 2018 · Pub. 1187 (For Form 1042-S)...

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