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. The first notices are sent in October, and the second notices are sent in April.
You may need to begin backup withholding on these payee accounts if you haven’t already. You should begin backup withholding immediately if the payee refuses or fails to provide a TIN or if the TIN provided is obviously incorrect (not 9 digits or contains something other than a number). The CP2100 and 2100A notices include a list of missing, incorrect, or not currently issued payee TINs.
Find guidance in Publication 15 (Circular E), Employer’s Tax Guide. The current backup withholding rate is 24% of payments you make to a payee. You must report the backup withholding you collect by filing Form 945, Annual Return of Withheld Federal Income Tax. When you file Form 945, file using the same name and employer identification number you used to file the information returns showing backup withholding. If your business uses a paying agent, don’t put their name on Form 945.
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 difference between the two versions of this notice is the number of errors in the taxpayer’s 1099 filing. Generally, the IRS issues a CP2100 notice when there are 50 or more TIN matching issues with their 1099s. IRS CP2100A notices are issued 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 $310 per information return or $630 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 must 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.
If the payee sends corrected information, you should update your account records. 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 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 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 must 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.
Visit the IRS website “Understanding Your CP2100 or CP2100A Notice” for additional information.
This story was sourced from The IRS, Slate Accounting Technology, and Aatrix News
