Jun 05, 2023

What Is A CP2100 or CP2100A Notice

IRS CP2100 and 2100A notices are letters the IRS sends to inform payers who issue 1099 forms without a taxpayer identification number (TIN) or where the TIN doesn't match the name in the IRS records.

These incorrect TIN notices can stem from a variety of information returns, including reportable payments on:

• Form 1099-NEC Nonemployee Compensation Form
• Form 1099-INT Interest Income Form
• Form 1099-DIV Dividends and Distributions
• Form 1099-MISC Miscellaneous Income
• Form 1099-B Proceeds from Broker Transactions
• Form 1099-K Payment Card and Third-Party Network Transactions
• Form 1099-PATR Taxable Distributions Received from Cooperatives
• Form 1099-OID Original Issue Discount Form
• Form W-2G Certain Gambling Winnings

CP2100 and 2100A notices will explain why the discrepancy occurred and what steps need to be taken by the taxpayer to resolve the issue. It also informs the issuer that they may need to begin backup withholding.

The primary differences between the two versions of this notice are the number of errors in the taxpayer's 1099. Generally, the IRS issues a CP2100 notice on CD, DVD, or paper when there are numerous TIN matching issues with their 1099s. IRS CP2100A notices are issued on paper when the taxpayer's 1099s contain fewer than 50 errors.

Why Is It Important To Pay Attention To CP2100 Notices

The IRS generally gives taxpayers 15 days from the date of the notice to respond and provide any additional information needed to resolve their discrepancies. If you fail to take action within the specified window, you may face stiff penalties.

The penalties vary depending on how many errors there are in your 1099s and the type of errors contained in them. The penalty can be as high as $280 per information return or $570 per information return if the failure is due to intentional disregard, with no maximum penalty.

What To Do If You Get A 2100 Notice

Responding to CP2100 and 2100A TIN matching error notices is labor intensive. You may need to review multiple years of data to determine how to address each incorrect TIN.

If it's a simple mistake—for example, you inadvertently transposed some numbers when entering a taxpayer identification number, that's an easy fix. You just need to enter the correct payee's TIN in your account records and report accurate information the next time you issue information returns.

However, if the fix is more complex, you must send the payees IRS B Notices. However, your required actions depend on whether this is the first B Notice for the payee.

First B Notice

If this is the first time a payee has been listed on a CP2100 or CP2100A notice in the past three years, then you need to send the payee a B notice and Form W-9 within 15 business days.

The B Notice is a warning from a payer to a payee to update their tax information on file with the payer because it doesn't match IRS records.

You should update your account records if the payee sends corrected information. However, you don't need to issue a corrected 1099.

If the payee doesn't respond to the B Notice within 30 business days, you must begin backup withholding at a flat 24% rate. If you made a one-time payment to the payee and will never pay them again, you don't have a backup withholding obligation.

Once you're responsible for backup withholding, you'll need to file IRS Form 945, Annual Return of Withheld Federal Income Tax, with the IRS.

After that, if you issue any payments to the payee without backup withholding, you could become secondarily liable for the unwithheld tax. Backup withholding errors can also be costly. For example, if you send $10,000 in reportable payments and neglect to take out backup withholding, you could be subject to a $2,400 assessment for the unwithheld tax plus penalties and interest.

You can find additional instructions for handling backup withholding on payments in IRS Publication 1281.

Second B Notice

If this is the second time the payee has been listed on CP2100 and CP2100A notices within the past three years, you have 15 business days to send a second B Notice to the payee. However, you don't need to send them a Form W-9.

Instead, the payee is required to certify their TIN. Individuals can do this by providing a copy of their Social Security card or contacting the IRS to get their employer identification number (EIN) validated via a Letter 147C.

You must begin backup withholding if the payee doesn't certify their TIN within 30 business days.

IRS Publication 1281 also includes a B notice template letter to send to payees who need to correct their Form W-9 information or certify their TIN.

How To Avoid CP2100 Notices

The Best way to avoid the time-consuming and costly issues created by receiving a CP2100 Notice is to require a W-9 from all vendors and use TIN verification before issuing 1099s each year. Using TIN verification allows you to identify any mismatches and take action to correct them before you file.                                    

Tax Identification Number (TIN) Matching services are now available through Aatrix eFile and are included in any of our Unlimited Filing Packages.

 

This story was sourced from Slate Accounting Technology and Aatrix News