Find out everything you need to know about Form 1099-NEC and Form 1099-MISC to avoid compliance violations.
In July 2019, the IRS issued a release draft of a new Form 1099 for use commencing in the 2020 tax year (i.e., in 2021), a Form 1099-NEC to replace the Form 1099-MISC, Box 7 and Box 9 for reporting direct sales of $5,000 or more. This means that commencing in 2021, when reporting with regard to the 2020 calendar year, there are now two (2) different forms to consider (Form 1099-MISC and Form 1099-NEC), as opposed to one. In this topic, we will focus on the new forms, and how to fill them out properly, with an emphasis on some of the confusion that exists. Boxes 3 and 7 of the Form 1099-MISC form, as well as knowing what items go on which form will be discussed. Learn what reconfiguration may be needed of your accounting systems and ensure that you identify vendors that will now require the two different forms (for e.g., rents and lawn maintenance) and what training and communication will be needed to prevent confusion. Issuers need to plan now on how to reconfigure their accounting systems, train and communicate with vendors, using best practices. Those best practices need to include Form W-9 preparation, and addressing backup withholding, and how to avoid penalties. There are hot spots that also need to be addressed, such as how to distinguish employee compensation from nonemployee compensation, addressing Section 530 issues, and spotting when fraudulent forms 1099 are issued implicating Section 7434 claims. Many accounts payable and accounting departments struggle with correctly completing Form 1099-MISC. They often do not know how to issue a 1099-MISC to disregarded entities or how to report special payments such as legal settlements or payments made after the death of an employee. Payable departments often miss deadlines when responding to IRS B notices which can result in penalties. This material will help those responsible for issuing these forms to collect the pertinent information to complete a correct 1099-MISC or 1099-NEC form. Information covered includes new issues for reporting, how to report to disregarded entities, how to report medical payments, and legal settlements and the proper reporting for payments made after the death of an employee. Failing to properly complete and file these forms is a common issue which exists for all payers, both for-profit and not-for-profit entities. The result of issuing incorrect forms is often penalties imposed on the payer. This information will help payers avoid penalties as well as limit the number of corrected forms they will have to prepare.
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T. Scott Tufts, Esq.
- Senior tax counsel, CPLS, P.A.
- Practice emphasizes helping clients who are faced with the filing of certain IRS forms that lead to disputes, as well as tax disputes with the IRS, probate and Federal and state court disputes involving partners and members and estates
- Practice areas include the handling of IRS tax disputes, expert witnessing, and consultation with partners, members, and their practitioners that pertain to IRS Forms 8082 (notice of inconsistent treatment and erroneous K-1s), as well as IRS Forms 8886 (Reporting of Abusive Tax Shelters), SS-8 (worker classification), 1099-MISC (independent contractors), W-2c/ Form 4852 (Substitute Form W-2 or Form 1099-R); Form 211 (whistle-blowers), Form 3949-A (referral of alleged violations of the tax laws), Form 14242 (suspected abusive tax promotions or promoters), Form 14039 (stolen identity and use of your SSN), Form 14157 (reporting of fraud or abusive tax scheme by preparer), and Form 13909 (reporting of suspect misconduct or wrongdoing of tax exempt or employee plan)
- Conducts regular seminars and workshops on areas focused on whistle-blowers and the handling of IRS disputes, as well as in the areas of probate and tax, and partnership and LLC matters
- Wrote several publications: “Evaluating LLC Operating Agreements Containing 'Carte Blanche' Authority and Right to Rely Provisions Purporting to Release Third Parties from Any Duty to Inquire,” Tax Section Bulletin, Florida Bar, Tax Section, Vol. XXIX, No. 2, p. 7, 10-26 (Fall 2013); “AD Global and the Statute of Limitations for TEFRA Partnerships: Will the TMP Ever Have to Stop Looking in the Rear View Mirror for the IRS,” Tax Section Bulletin, Florida Bar, Tax Section, Vol. XXIV, No.2, p.14, pp.25-29 (February 2006); “It Ain’t Over ‘Til It’s Over: When Partnership Tax Vessels Make Ill-Advised Journeys and Wind-Up at Harbor Cove Marina.” Journal of Business Entities (September/October 2004); “What IRS Form 8082 Can Do For You (and to you!) and Your Closely-Held Partnership Now that the IRS’ K-1 Matching Program is Underway,” BNA Tax Management Real Estate, Vol. 19, No. 12 (December 3, 2003); and “Are Single-Member LLCs a Ticking Time-Bomb for Asset Protection?” (Are Single-Member LLCs of Any Utility for Asset Protection after the Florida Supreme Court’s Decision in Olmstead?), ABA Teleconference (August 24, 2010)
- LL.M. degree in taxation, University of Miami School of Law; J.D. degree, Wake Forest University School of Law; B.S. degree in accounting, Florida State University
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