The IRS’ method to ensure accurate information returns

If there are any differences between the information submitted by businesses, banks or credit unions and the records of the IRS, the IRS usually sends out notices called CP2100 or CP2100A. These notices are mainly used for communication purposes, but if ignored, they can lead to penalties imposed by the IRS.   

When you file information returns, the information must match IRS records. If it does not, you might receive a notice, indicating the submitted information returns have missing or incorrect Taxpayer Identification Number (TIN), names or both. The IRS sends these notices with a list of payees whose information contains discrepancies. As a payer, you must cross-reference this list with your account records and make any necessary corrections or updates. 

The IRS dispatches these notices twice a year: once in April and again in Sept. or Oct. So, it’s crucial to double-check your records and make sure they align with the information submitted on your returns. 

There are numerous information returns where these errors typically appear: 

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

In addition to notifying payers about potential data discrepancies, the CP2100 and CP2100A also notifies you of your obligation of potential federal back up withholding for 1099 recipients. This is necessary if the recipient fails to provide the correct TIN to the payer. This can also occur in limited cases, if the recipient fails to certify they are not subject to back up withholding for underreporting their taxable income. 

Backup withholding may also be required if the IRS notifies the payer that the 1099 recipient has provided an incorrect TIN, has failed to certify their TIN as required or that they must commence backup withholding because the payee did not include all their income that was reported directly to the IRS on their tax return. 

Payers bear the responsibility for any amount they fail to back up withhold and any penalties that might apply due to these discrepancies. So, it’s critical to ensure all tax-related paperwork is accurate, complete and up to date. Understanding and responding to CP2100 and CP2100A notices promptly will keep you in compliance with IRS rules and save you from any potential penalties. Contact an Adams Brown advisor to discuss your situation.