On November 14, 2019, the IRS announced that it has redesigned Notices CP2100 and CP2100A with the goal of providing more information to affected payers. These Notices are used to alert payers that the IRS received Forms 1099 containing incorrect or missing Taxpayer Identification Numbers (TINs) for payees and that the payer may need to contact payees regarding their name and TIN information and/or backup withhold at a rate of 24% as a result. Payments potentially subject to backup withholding are reportable payments, such as interest (including tax-exempt interest), dividends, broker and barter exchange transactions, rents, royalties, nonemployee compensation, payments made in settlement of payment card and third party network transactions, and certain payments from fishing boat operators.
The new Notices are expected to include information related to the types of TINs issued, which notices (often referred to as “‘B’ Notices”) to send to affected payees, how and when to send such “B” Notices, when to stop backup withholding, and other instructions for what to do after receiving a CP2100 or CP2100A Notice. Perhaps most importantly, the Notices are expected to contain information about how to validate TINs, which is an important step for payers to avoid the need for backup withholding in the first place. Avoiding the need to backup withhold is particularly important because backup withholding assessments can be significant and difficult to remediate. Further, such assessments are “above the line” expenses for financial statement purposes and therefore directly affect expenses used to calculate pretax income for businesses.
This redesign follows the IRS’s announcement earlier this year that it was launching a program to pursue backup withholding failures. The revisions to Notices CP2100 and CP2100A should make it easier for payers to comply with backup withholding requirements and to avoid being subject to backup withholding in the future, which will be all the more valuable given the IRS’s intention to more aggressively enforce backup withholding requirements.