Important Changes for Forms 1099 and 1042-S Reporting for 2018 - Marianne Couch, J.D. COKALA Tax Information Reporting Solutions, LLC ...
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Important Changes for Forms 1099
and 1042-S Reporting for 2018
Marianne Couch, J.D.
COKALA Tax Information Reporting Solutions, LLC
www.cokala.com
office@cokala.comNew Form W-9
Dated October, 2018
No changes to form; IRS just changed references to backup
withholding rate in instructions.
Backup withholding rate was decreased from 28% to 24% as a result
of tax law passed last December.
24% rate became effective 1/1/18.
Copyright 2007-2018 COKALA Tax Information Reporting Solutions, LLC 2Automatic Extension For Forms 1099-MISC Reporting NEC
Eliminated
Beginning with 1099-MISC returns that report a box 7 payment made in calendar year 2018 – returns
which are due to the IRS January 31, 2019 – filers are no longer permitted to automatically claim 30
additional days in which to file these “NEC” returns.
If the filer has suffered one of five specific hardship or catastrophic events which are listed in the new
regulation, the filer may request the IRS grant one 30-day extension of time to file.
1. The business suffered a catastrophic event in a Federally Declared Disaster Area that made the business
unable to resume operations or made necessary records unavailable.
2. A fire, casualty or natural disaster affected the operation of the business.
3. Death, serious illness or unavoidable absence of the individual responsible for filing the information returns
affected the operation of the business.
4. The information return is being filed for the first year the business was established.
5. The filer did not receive timely data on a third-party payee statement. The IRS examples of such a third-
party statement are receipt of a Form 1042-S, or Schedule K-1 partner information, or sick pay statement.
Automatic 30-day filing extensions are still available for the other information returns in the 1099, 1098,
1097, 5498 and 1094/1095 series plus 1042-S, 3921, 3922 and 8027,and W-2G.
IRS has updated Form 8809 to reflect this change.
Copyright 2007-2018 COKALA Tax Information Reporting Solutions, LLC 3New Form 8809
The new edition of IRS Form 8809, Application for Extension of Time
To File Information Returns, has been released as a final form – and is
the only version of Form 8809 which the IRS will accept for
extensions of the tax year 2018 information return due date (returns
due to the IRS in 2019).
The new Form 8809 is designated “Rev. November 2018” in the
upper left corner.
See it at https://www.irs.gov/pub/irs-pdf/f8809.pdf.
Copyright 2007-2018 COKALA Tax Information Reporting Solutions, LLC 4Late-Filed NEC Forms 1099-MISC
If you file Forms 1099-MISC reporting NEC after the January 31 deadline
and without a hardship extension (i.e., you are filing these forms late),
you must file them separately from any other Forms 1099 due and filed
after January 31.
If you file late Forms 1099-MISC reporting NEC with other forms due after January 31,
IRS is likely to treat all forms as filed late and issue proposed penalty notice for all of
these 1099s.
Copyright 2007-2018 COKALA Tax Information Reporting Solutions, LLC 5Proposed Regulation Changing Paper-Filing
Threshold
Currently, you may file up to 249 paper Forms 1099.
249 threshold applies separately to each type of Form 1099 and to corrections.
REG-102951-16 would aggregate the 249 threshold across all types of
information returns; it would not apply separately to each type of return.
In addition, if an original return was required to be filed electronically, any
correction to that return would also be required to be filed electronically.
This regulation, if passed as written, would be effective for information returns
required to be filed after December 31, 2018; and for corrected information
returns filed after December 31, 2018.
Copyright 2007-2018 COKALA Tax Information Reporting Solutions, LLC 6Pub. 1220 Updates
Test files will be accepted November 5 through 6 p.m. (Eastern)
December 5, 2018.
Test files will also be accepted beginning January 2, 2019.
The FIRE system will begin accepting information return files on
January 10, 2019.
The user PIN must be 10 unique numbers which can’t be in
consecutive ascending or descending numerical order.
Users must set up a “secret phrase” to use in the event of having to
reset a password.
Copyright 2007-2018 COKALA Tax Information Reporting Solutions, LLC 7Pub. 1220 Updates
Changes affecting Extension of Time files:
Because no automatic 30-day extension is available for Forms 1099-MISC
that report an amount for Box 7 (nonemployee compensation, “NEC”),
Document Indicator Code A has been eliminated as an option at Field
Position 186 of the electronic Extension of Time layout.
The new Forms 1099-LS and 1099-SB have been added to the list of
information returns for which Document Indicator Code 2 is used in Field
Position 186. Form 1099-LS is “Reportable Life Insurance Sale” and Form
1099-SB is “Seller’s Investment in Life Insurance Contract.”
Change in the Combined Federal/State Filing Program:
Vermont is no longer a participating state, so state indicator Code 50 has
been eliminated as an option at Field Positions 747-748 in the K Record (state
totals) of the electronic file.
Copyright 2007-2018 COKALA Tax Information Reporting Solutions, LLC 8Pub. 1220 Updates
New record layouts/fields for Forms 1098; 1098-T; 1099-DIV; 1099-LS
(new form; reportable life insurance sale); 1099-SB (new form;
seller’s investment in life insurance contract); 1099-R; and 5498.
Copyright 2007-2018 COKALA Tax Information Reporting Solutions, LLC 9Pub. 1187 (For Form 1042-S) Updated
New efiling mandate for partnerships:
Beginning with tax year 2018, a partnership that is filing Form 1042-S is
required to file electronically if it has more than 100 partners or if it is
required to file 200 or more information returns for tax year 2018.
In future years, a partnership will be required to file electronically if it has
more than 100 partners or if the total of Forms 1042-S it is required to file is
at least 150 for tax year 2019, 100 for 2020, 50 for 2021, and 20 for tax years
after 2021.
There have also been changes in record format specifications and
record layouts.
Obtain Pub. 1187 at https://www.irs.gov/pub/irs-pdf/p1187.pdf
Copyright 2007-2018 COKALA Tax Information Reporting Solutions, LLC 10Form 1042-S
Boxes 9 and 11 have flipped
Prior Years:
Box 9
Tax paid by withholding agent
Box 11
Amount repaid to recipient
Tax Year 2018:
Box 9
Overwithheld tax repaid to recipient pursuant to adjustment procedures (see
instructions)
Box 11
Tax paid by withholding agent (amounts not withheld) (see instructions)
Copyright 2007-2018 COKALA Tax Information Reporting Solutions, LLC 11Form 1042-S IRS Compliance Initiatives
Failures to withhold become tax liability of the withholding agent
Example, general rule under chapter 3:
Withholding agent that cannot reliably associate a payment with valid
documentation on the date of payment and that does not withhold under
this section, or withholds at less than the 30percent rate prescribed … is
liable … for the tax required to be withheld.
Example, chapter 4:
Withholding agent that fails to report and withhold … with respect to a
payment that it cannot reliably associate with valid documentation shall be
liable for tax, interest and penalties.
Copyright 2007-2018 COKALA Tax Information Reporting Solutions, LLC 12Form 1042-S IRS Compliance Initiatives
Multi-year efforts to identify and block refunds, or credit, of foreign
persons’ withheld tax, when IRS system can’t “see” where the
withholding agent made tax deposit of the withheld amount
reported on Form 1042-S
Notice 2015-10: an otherwise allowable claim for refund or credit
made by a claimant that is the beneficial owner of a withheld
payment only available to the extent that the relevant withholding
agent deposited the amount withheld. Pro rata formula to calculate
what portion of claimed withholding would be recognized.
Copyright 2007-2018 COKALA Tax Information Reporting Solutions, LLC 13Form 1042-S IRS Compliance Initiatives
November 2017, Form 1120-F Chapter 3 and Chapter 4 Withholding
Campaign
Designed to verify withholding-at-source for claims of refund of withheld tax
May 2018, Forms 1042 and 1042-S Compliance Campaign
Aimed at withholding agent noncompliance with requirements to withhold
tax, deposit tax, and file information returns
May 2018, Nonresident Alien Tax Treaty Exemptions Campaign
Will find incomplete or incorrect forms accepted by withholding agents
resulting in improper claims of treaty benefits
Copyright 2007-2018 COKALA Tax Information Reporting Solutions, LLC 14Corrections Safe Harbor
For 1099s filed after 12/31/16, no correction will be required if*:
the dollar amount for a single type of payment reported on the Form 1099 was in error but
within $100 of the correct amount; or
the dollar amount reported as withheld tax was in error but within $25 of the correct
amount.
* Unless your payee requests a correction.
If payee requests a correction, you will have to do one.
Notice 2017-09, issued 01/2017, provides guidance on what the payee’s request (referred to
as an “election”) must contain, your recordkeeping requirements for these elections, and
how the payee may revoke the election. Payee may request either to:
Receive corrections for the year in which the election is furnished to you, or
Receive corrections for all years forward until payee revokes the election.
Notice 2017-09: https://www.irs.gov/pub/irs-drop/n-17-09.pdf
Copyright 2007-2018 COKALA Tax Information Reporting Solutions, LLC 15De Minimis Corrections – Proposed Regulations Provide Time Frame Limitation
For Recipient’s Override Of The
De Minimis Rule
New proposed regulations, REG-118826-16, provide that if a payee wants to
elect out of the de minimis on corrections to Forms 1099, and thereby
require the payer to issue corrected 1099s despite the difference in dollar
amount being no more than $100 (or a difference of no more than $25 of
withheld tax), the payee must make this election no later than 30 days after
the date on which the payee statement is required to be furnished to the
payee – or October 15 – whichever is later.
This resolves uncertainty in the earlier guidance of Notice 2017-9
(https://www.irs.gov/pub/irs-drop/n-17-09.pdf) which said, “A payee may make an
election with respect to payee statements required to be furnished in the calendar year
in which the payee makes the election …” and “The payor may not impose any … time
limitation on the payee’s ability to request a corrected payee statement …”
Copyright 2007-2018 COKALA Tax Information Reporting Solutions, LLC 16Forms 1099-MISC And 1099-K – Advance
Look At Tax Year 2019 Forms And Instructions
Indicates No Changes
Form 1099-MISC, reporting Miscellaneous Income, and Form
1099-K, reporting Payment Card and Third Party Network
Transactions, appear set to repeat the same paper form
layout and the same instructions as for 2018, for Tax Year
2019 information which will be filed to the IRS in 2020.
If legislative changes were to occur the IRS would need to consider
revisions, but otherwise there’s no indication of change in these two
forms other than updating the calendar year references.
Copyright 2007-2018 COKALA Tax Information Reporting Solutions, LLC 17Draft Forms Available
A draft of the 2019 Form 1099-MISC is posted on the IRS
website at https://www.irs.gov/pub/irs-dft/f1099msc--
dft.pdf and a draft of the 2019 Instructions for Form 1099-
MISC is posted at https://www.irs.gov/pub/irs-dft/i1099msc-
-dft.pdf.
A draft of the 2019 Form 1099-K is posted on at
https://www.irs.gov/pub/irs-dft/f1099k--dft.pdf and a
finished PDF of the 2019 Instructions for Form 1099-K is
posted at https://www.irs.gov/pub/irs-pdf/i1099k.pdf.
Copyright 2007-2018 COKALA Tax Information Reporting Solutions, LLC 18Worker Classification
An audit report from the Treasury Inspector General for Tax
Administration (TIGTA) has led to the IRS committing to make
changes in how worker classification Form SS-8 requests from gig
economy workers are handled.
In addition, TIGTA’s final report has been forwarded to the Assistant
Secretary of the Treasury for Tax Policy to pursue a legislative change
to Section 530 so that, at a minimum, the IRS can take prospective
action to enforce the law on employers who incorrectly treat workers
as independent contractors.
Copyright 2007-2018 COKALA Tax Information Reporting Solutions, LLC 19Worker Classification and the “Gig” Economy
The “gig economy,” which generally uses web-based platforms to bring people
together who need services and other people who are willing to provide those
services, has made worker classification more complex.
TIGTA audited IRS activity in handling Forms SS-8 submitted by gig economy
workers.
TIGTA found gig economy cases that were mishandled by the IRS due to lack of
guidance or misunderstanding of rules, resulting in the IRS handlers mistakenly
determining that no decision could be made on the gig workers’ cases.
To correct the serious problem of such mishandling of SS-8 worker classification
submissions, TIGTA recommended that the IRS create new guidance and training
for the responsible IRS functions to ensure the accurate processing and
determinations of worker classification requests, including gig economy worker
classification requests.
The IRS agreed with the recommendation and will create additional guidance
and training for the responsible functions to ensure the accurate processing and
determinations of worker classification requests, including gig economy worker
classification requests.
Copyright 2007-2018 COKALA Tax Information Reporting Solutions, LLC 20Section 530 Relief
If an employer is found to have improperly treated workers as contractors, when they
should have been treated as employees, Section 530 can protect the employer from having
to pay past employment taxes for misclassified workers, if the employer had filed all 1099-
MISC information returns as required and hadn’t treated substantially similar workers as
employees.
Because the TIGTA audit found internal IRS misunderstanding of how Section 530 relief
affects individual workers, TIGTA recommended that the IRS Deputy Commissioner,
Services and Enforcement, should work with the U.S. Department of Treasury Office of Tax
Policy to pursue a legislative change to Section 530, including that, at a minimum, the IRS
can take prospective action to enforce the law on employers who incorrectly treat workers
as independent contractors.
Legislation to alter or repeal Section 530 has been introduced in Congress several times in
the last decade but never been enacted.
Now, however, the IRS has agreed with the recommendation and will provide a copy of
TIGTA’s final report to the Assistant Secretary for Tax Policy to pursue a legislative change to
Section 530.
See audit report 2018-30-077, Improvements to the SS-8 Program Are Needed to Help
Workers and Improve Employment Tax Compliance,
at https://www.treasury.gov/tigta/auditreports/2018reports/201830077fr.pdf.
Copyright 2007-2018 COKALA Tax Information Reporting Solutions, LLC 21IRPAC Recommendations To IRS – Annual Report Covers Wide
Range Of Practical Improvements For Burden Reduction And
Administrative Simplification
The Information Reporting Program Advisory Committee to the IRS
Commissioner (IRPAC) held its annual public meeting this week and
released its annual report.
The Report is available at: https://www.irs.gov/pub/irs-
pdf/p5315.pdf.
Electronic signature on the IRS W-9.
IRPAC strongly continues to recommend for 2018 that the IRS extend
electronic signature capability to the Form W-9.
Separate Form 1099-NEC.
IRS should consider implementing Form 1099-NEC (with a January 31 due
date) so that nonemployee compensation can be reported on that form,
separately from Form 1099-MISC which reports other income items with a
later due date.
Copyright 2007-2018 COKALA Tax Information Reporting Solutions, LLC 22IRPAC Report
Don’t change filer’s address in the Business Master File unless the filer
requests the change.
This decades-old problem continues to be a serious problem and IRPAC
continues strongly to recommend procedures that require positive
affirmation of a change of address from a corporate filer before updating the
BMF.
Numerous scenarios result in addresses being changed without the entity’s
knowledge; IRS then uses the incorrect addresses to communicate B-Notices,
972CG Penalty Notice and other such notices containing personal
identification information of underlying clients of the corporate filer.
Eliminate Form 8233.
IRPAC recommends that Form 8233 be eliminated, and the process to
achieve treaty benefits for personal services performed in the U.S. be
streamlined and blended into existing Forms W-8.
Copyright 2007-2018 COKALA Tax Information Reporting Solutions, LLC 23IRPAC Report
Improve the Combined Federal/State Filing Program.
Make CF/SP information returns available to the states earlier in the year and
on a more frequent, or even real-time, basis. States have pulled out of
Combined filling (either totally or for all returns that report state income tax
withholding) because the IRS doesn’t forward the data to states until long
after state income tax returns have been filed. An improved Combined
program with much greater state participation would reduce the burden of
filers presently having to file to numerous separate state tax agencies.
Table of treaty rates for pension distributions.
Provide guidance on specific countries with which the U.S. has an income tax
treaty where pension payments are subject to a specialized treatment
depending upon the type of payment; add this to the online Tax Treaty
Tables.
Footnotes can highlight that the rate of withholding may vary depending
upon whether the pension payment is a periodic payment or a lump sum
distribution.
Copyright 2007-2018 COKALA Tax Information Reporting Solutions, LLC 24IRPAC Report
Gross proceeds reporting, FATCA.
IRPAC requests a delay in the requirement to deduct and withhold tax on
gross proceeds and foreign pass-through payments for two years following
the issuance of guidance defining the terms.
Add a standardized field on Forms W-8 for the Reasonable Written
Explanation for lack of foreign taxpayer identification.
Copyright 2007-2018 COKALA Tax Information Reporting Solutions, LLC 25Questions?
Copyright 2007-2018 COKALA Tax Information Reporting Solutions, LLC 26You can also read
