New Questions for Businesses on IRS Forms

The Internal Revenue Service has added two new questions to all business tax forms for 2011 regarding IRS Form 1099 reporting. The intention of the IRS is to put the taxpayers on notice regarding their 1099 filing obligations. These new questions appear on all corporation and partnership forms. They also appear on individual forms for sole-proprietors (Schedule C), rental property (Schedule E), and farms (Schedule F).

The questions seem simple enough, but can lead to problems if answered incorrectly. The questions are:

1.    Did the business make any payments in 2011 that would require it to file form(s) 1099?

2.    If yes, did the business file or will it file all the required Forms 1099?

With the addition of these questions on business tax returns, the IRS is putting businesses on the hook to ensure the forms are getting filed. If a business does not file any Form 1099's and should and it answers yes to the first question and no to the second, it's an invitation to be audited. Also, if a taxpayer answers no to the first question when it knows it should have answered the question yes, an accuracy related penalty may apply.

As a reminder, a 1099 is a form that reports the amount of fees paid to independent workers along with their name, address and social security number. IRS then cross references the 1099s they receive from payers like you with the tax returns filed by the independent workers to make sure they are claiming the appropriate income on their tax returns.

If a business, sole-proprietor, or owner of rental property use independent contractors to perform services, and they pay them $600 or more for the year, they are required to issue them a Form 1099 after the end of the year to avoid facing the loss of deduction for their labor and expenses and to avoid monetary penalty. The 1099's for 2011 must be provided to the independent contractor no later than January 31, 2012. In order to avoid a penalty, copies of the 1099s need to be sent to the IRS by February 28th.

If you have any questions or doubts regarding the proper answer to these questions, please do not hesitate to contact us for assistance.  

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