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Home » Best Practices to Minimize B and P Notices
Each year, the IRS sends B Notices in the form of IRS Notice CP2100 and CP2100A and P Notice in the form of IRS Notice 972CG to Form 1099 filers. These Notices are sent to Form 1099 filers when they provide a name and taxpayer identification number (TIN) combination that doesn’t match the IRS database. This is done to rectify any discrepancies and ensure accurate tax reporting.
As organizations make lasting decisions about their work setup, be it on-site, hybrid, or remote, it’s crucial to be proactive in preventing these notices along with the associated penalties. Both types of notices necessitate a set of timely actions from your organization to avoid penalties as outlined in the Internal Revenue Code (IRC) sections §6721 and §6722.
It is important to note that the notices are typically mailed to the address that last filed a 1099 with the IRS. Be certain that your organization tracks what departments are submitting 1099 forms and validate that you have not missed the delivery of your notices as they have specific response timelines.
An IRS “B” notice, also known as a backup withholding notice or Form CP2100, is a notification sent by the IRS to payers who have filed 1099 forms with missing or invalid Taxpayer Identification Numbers (TINs). The IRS cross-checks the 1099 forms filed by payors against its own database of name and TIN records. If discrepancies are found, the IRS sends out “B” notices to notify the payor of the issue.
The “B” notice informs the payor that they may be required to initiate backup withholding. Backup withholding involves withholding a percentage of payments to the payee and remitting it to the IRS. Generally, it is advisable to avoid backup withholding, if at all possible, therefore it is best if you follow the process to collect corrected information from your recipients and document that process for the IRS.
The notice also typically includes a listing of the missing, incorrect, or not currently issued payee TINs that need to be addressed which will aid in the process of collecting corrected information. It is crucial for the payor to rectify these discrepancies to avoid penalties and ensure compliance with tax regulations.
A “P” notice, also known as penalties and abatement notice or Form 972CG, is a communication from the IRS proposing penalties to filers annually. These penalties are related to various issues with the filed returns. The common reasons for receiving a “P” notice include:
The “P” notice outlines the proposed penalties and necessitates the filer to demonstrate “reasonable cause” to qualify for penalty abatement. The filer is also required to contact recipients to obtain updated name/TIN information to address the issues identified in the notice.
Responding to a “P” notice is crucial to avoid penalties and to provide the necessary justifications or evidence of reasonable cause for any discrepancies. It’s essential for filers to ensure compliance with IRS regulations and maintain accurate and timely reporting to minimize the likelihood of receiving such notices.
By implementing these best practices, you can effectively minimize “B” and “P” notices and maintain accurate tax identity information for smoother tax reporting processes.
Before the upcoming season, here are five essential considerations for your organizational processes:
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To learn more about B Notices or P Notices and how to remain compliant, contact our customer support or reach out to us at: [email protected]
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