Slidedeck from the March 28, 2017 Tax Tuesday webinar.

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W E B I N A R
1099 Corrections Refresher
S P E A K E R S
Paul Banker – General Manager
Sovos Compliance
Seth Zellner – Pollster
Sovos Compliance
March 28, 2017

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Agenda
• Introduction
• How to handle
• Best practices
• Messaging around corrections
• Timing overview
• Penalties

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Introduction
Introduction to Sovos Compliance:
• +30 years experience entirely dedicated to
tax information reporting.
• #1 private filer of 10-series forms (1099’s, 1098’s, 1042-S
forms) in the U.S., annually processing over 400 million
forms & more than 1 billion transactions.
• Helping organizations of all sizes with over 4,000 clients
and serving nearly half of the Fortune 500.
Introduction to the call
Paul Banker
General Manager
Seth Zellner
Sales Engineer/Pollster

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How to handle corrections

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Physical copy delivery
• Consider lead times
• Print notes and messaging
• Transaction level detail

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Electronic delivery
• Reduce time and costs
• Can be available immediately
• Increase customer satisfaction

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Transmitting
• Electronic 1220 vs paper 1096
• Current year vs prior year rules

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1042-S changes affecting corrections
• Unique identifier
• Number of times
amended
• Tracking these items
to become vitally
important
• Expected to move to
other form types

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Best Practices

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Best practices to avoid corrections
• Load data into processing platform more frequently
• Utilize the name and TIN matching service
• Proactively solicit for correct information

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Additional best practices
• Perform a pilot season
• Reconcile forms back to source systems
• Reconcile withheld amounts to remittances made
• Update corrected records in tax system AND source system

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Reconciling
• Usually manual
o Done via spreadsheet, database, napkin…
• Time consuming in January
• Finding the needle in
the haystack
• Find ways to automate
• Reconcile frequently

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The ½ of 1% rule
• Reduce your B-notice volume to ½ of 1% of your form volume
• Eliminate your 972CG

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Timeline Review

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Timelines, they are a changin’
PATH Act – Section 201 has advanced filing deadlines for a subset of
information returns
• January 31st due date for filing Forms W-2 and 1099-MISC (non-
employee compensation)
• Effective with returns filed for 2016
• Originates from Senate Finance Committee
proposals to reform the code

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Correction Filings
When corrected returns are filed matters
• Penalties change
• Customer satisfaction considerations

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1st Corrections
2nd Corrections
Federal Reporting
1st & 2nd B-Notices
Penalty Notices
(1 year later)

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Penalty Updates

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Summary of Increase in Penalties for Failure to File
Summary of Increase in Penalties for Failure to File Correct Information Returns and to Provide
Correct Payee Statements (July 2015)
P. L. 114-27, section 806, increased penalties for failure to file correct information returns and
provide correct payee statements for information returns required to be filed after December 31,
2015.
$50 per information return if you correctly file within 30 days (by March 30 if the due date is February 28);
maximum penalty $500,000 per year ($175,000 for small businesses).
$100 per information return if you correctly file more than 30 days after the due date but by August 1; maximum
penalty $1,500,000 per year ($500,000 for small businesses).
$250 per information return if you file after August 1 or you do not file required information returns; maximum
penalty $3,000,000 per year ($1,000,000 for small businesses).
$500 per payee statement with no maximum penalty for intentional disregard of the requirements to file or furnish
a correct payee statement.

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Inflation Increases for 2016 – Failure to File
Increase in Penalties for Failure to File Correct Information Returns and to Provide Correct
Payee Statement – Inflation Increases for 2016
Additional increases in penalties have also been effectuated for failure to file correct information
returns and provide correct payee statements for information returns required to be filed after
Dec. 31, 2015.
Section 6721 Failure To File Correct Information Returns by the Due Date & 6722 Failure to
Furnish Correct payee statements are revised as follows for 2016:
$50 per information return if you correctly file within 30 days (by March 30 if the due date is February 28);
maximum penalty $529,000 per year ($185,000 for small businesses).
$100 per information return if you correctly file more than 30 days after the due date but by August 1; maximum
penalty $1,589,000 per year ($529,500 for small businesses).
$260 per information return if you file after August 1 or you do not file required information returns; maximum
penalty $3,178,500 per year ($1,059,500 for small businesses).
$520 per information return for intentional disregard with no maximum penalty.

21. Proprietary and Confidential the information and materials in this document are not for use or disclosure outside of Sovos Compliance, LLC. except under express written consent.
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Inflation Increases for 2017 – Failure to File
Increase in Penalties for Failure to File Correct Information Returns and to Provide Correct Payee
Statement – Inflation Increases for 2017
Additional increases in penalties have also been effectuated for failure to file correct information
returns and provide correct payee statements for information returns required to be filed after
December 31, 2016.
Section 6721 Failure To File Correct Information Returns by the Due Date & 6722 Failure to Furnish
Correct payee statements are revised as follows for 2016:
$50 per information return if you correctly file within 30 days (by March 30 if the due date is February 28);
maximum penalty $532,000 per year ($186,000 for small businesses).
$100 per information return if you correctly file more than 30 days after the due date but by August 1; maximum
penalty $1,596,500 per year ($532,000 for small businesses).
$260 per information return if you file after August 1 or you do not file required information returns; maximum
penalty $3,193,000 per year ($1,064,000 for small businesses).
$530 per information return for intentional disregard with no maximum penalty.

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Federal Penalties Increase Summary
Failure to Correctly File
• $250 (previously $100), CAP - $3M (previously $1.5M).
• With 2016 inflation increases, $260 (previously $250), CAP - $3,178,500
• Further CAP increases in 2017
Corrections
• Within 30 days –
– $50 (previously $30), CAP - $500,000 (previously $250,000).
– With 2016 Inflation increases, CAP - $529,000
– Further CAP increases in 2017
• Before August 1 –
– $100 (previously $60), CAP - $1,500,000 (previously $250,000).
– With 2016 Inflation increases, CAP - $1,589,000
– Further CAP increases in 2017
Intentional Disregard
• $500 (previously $250), NO CAP
• With 2016 inflation increases, $520
• Further increases in 2017

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Fancy table
Correction type 2015 2016 2017
Less than 30 days $50 $50 $50
Before August 1st $100 $100 $100
After August 1st $250 $260 $260
Mismatched name and TIN $250 $260 $260
Intentional disregard $500 $520 $530
Max penalty per EIN $3,000,000 $3,178,500 $3,193,000

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