Each year the IRS sends out B Notices in the form of IRS Notice CP2100 and CP2100A; these notices can create a significant administrative burden for Form 1099 filers. The B Notice creates potential backup withholding exposure, incorrect filing penalties, and potentially an IRS Form 1099 audit.
B Notices are sent to IRS Form 1099 filers who’ve submitted a name and taxpayer identification number (TIN) combination that doesn’t match the IRS database. Filers have a 15-day window to take action on the notices, and send updated TIN solicitations.
Essentially, every organization that does any amount of Form 1099 reporting volume will eventually get a B Notice due to circumstances beyond their control—for example, a payee changing their name or TIN without notifying the filer. It’s important to thoroughly understand the required B Notice obligations to avoid fines and penalties.
Below is a list of common questions and answers about B Notice compliance and penalty abatement to help you navigate the process.
1. What is a B Notice?
When a Form 1099 is filed, the IRS undergoes a process to match the recipient name and TIN information listed on the Form 1099 they receive with name and TIN combination in the IRS database.
The IRS relies on this matching process to maintain the integrity of the self-reporting aspect of the US income tax system. When name and TIN combinations don’t match the IRS database, the IRS can’t reconcile the income reported with an individual or non-exempt entity’s US tax return.
Each of these filings may represent lost tax revenue—or, at minimum, tax revenue the IRS can’t track if it isn’t included on a tax return.
To resolve this issue, the IRS has taken three key steps:
- Built a process around identifying mismatches
- Created procedures for filers to resolve issues
- Applied significant penalties for noncompliance
The result of this effort is a B Notice.
2. What does a B Notice look like?
A B Notice is delivered to a filer in the form of an IRS Notice CP2100 or CP2100A. Timing can vary, but it usually arrives in September or October.
The notice includes a list of Forms 1099 filed without a TIN, or where the name and TIN combination doesn’t meet IRS matching criteria. This notice will state that the filer may be responsible for backup withholding.
A Notice CP2100 can be issued on CD, DVD, or paper depending on the number of errors in the Form 1099. Filers with fewer than 50 errors are issued a Notice CP2100A on paper.
Occasionally, a filer may receive a second-pass B Notice generally issued in March of the following year. This notice accounts for late-filed, or corrected Forms 1099 with mismatched name and TIN combinations.
3. What am I required to do upon receipt of the B Notice?
In general, a B Notice requires the recipient to take several actions within a specific timeline:
- Search for any payee accounts with the same combination listed on the B Notice
- Notify the payee of the B notice within either 15 business days from the date the filer receives the notice or the date that’s listed on the notice—whichever is later
- Apply backup withholding to any payment that’s made to the payee more than 30 business days from the date the B Notice is received or dated, unless documentation required to cure the B Notice is provided prior to that date
The exact steps and timeline are specified in IRS Publication 1281 which is updated periodically. There’s a template letter provided in the publication that a filer can use to solicit the required B Notice cure documents from payees.
First and Second Notices
One challenge for filers is tracking first and second B Notices. IRS Notice CP2100 and CP2100A doesn’t distinguish between first and second B Notices, so it’s up to the filer to identify and delineate between them.
A first B Notice is defined as a name and TIN combination that hasn’t been identified in a B Notice received within the last three calendar years. Payees identified in a first B Notice must complete a valid Form W-9 and submit that form to the filer in order to avoid backup withholding. Even if the payee lists the same name and TIN combination that the IRS identified as invalid in the notice, the filer may accept that form to cure the first B Notice.
A second B Notice means a name and TIN combination that’s been identified in two B Notices within three calendar years. Collecting a Form W-9 from payees won’t stop a backup withholding obligation. To avoid backup withholding, a filer instead must collect either a social security card from individuals, or an IRS Letter 147C from non-individuals.
B Notice recipients must be tracked carefully to identify the difference between first and second B Notices.
4. If I get a new name and TIN combination from a payee during the B Notice process, do I need to correct the Form 1099 filing that was issued?
A previously filed Form 1099 doesn’t need to be corrected. Instead, update your system to report the correct information during the next Form 1099 reporting cycle.
5. Can I hold a vendor’s payment until they cure a B Notice to avoid backup withholding?
Yes. A backup withholding obligation won’t be triggered until the next payment is made.
6. What if the payment I made was a one-time payment and I’ll never pay that person again?
Filers are obligated to send one-time payees a B Notice, but there’s no backup withholding obligation if there aren’t future payment obligations.
7. What if the payee identified on the B Notice was an exempt recipient that shouldn’t have been reported in the first place?
It isn’t necessary to send that payee a B Notice. Instead, record the finding for purposes of penalty abatement.
8. What if I’m unable to secure a valid name and TIN combination from a person I’m contractually obligated to pay?
This payee must be subjected to backup withholding for all payments—24% is the current rate. This requires the filer to complete an IRS Form 945, and deposit that tax withholding into their Form 945 account.
The recipient won’t be able to reclaim this tax unless they provide a valid name and TIN combination to issue a Form 1099 as evidence there was withholding performed on their behalf.
This person may be removed from regular B Notice response mailings, but annual TIN solicitations from the payee must continue.
9. What if the payee identified on a B Notice is a foreign payee with no US TIN?
This person should provide a Form W-8 so their payments can be analyzed to determine if nonresident aliens (NRA) withholding should be applied. Payments of US-source fixed, determinable, annual, periodical (FDAP) income made to foreign payees must be reported on IRS Form 1042-S rather than a Form 1099. IRS Publication 515 contains more information on payments made to foreign persons.
If making a payment of US-source FDAP income to a foreign individual without having received a Form W-8BEN, the payee must be identified as an undocumented US individual and backup withholding should be applied.
10. What if I can’t find the name and TIN combination on a B Notice because the payee recently updated their TIN information after the 1099 reporting was issued?
Don’t issue a B Notice to that payee, simply document the finding for penalty abatement purposes.
11. What is considered a valid Form W-9?
A Form W-9 must include four essential elements:
The person completing the form must use the latest version of the form published by the IRS on its website.
12. What happens if the filer doesn’t comply with the B Notice procedure?
Complying with the B Notice response steps within the allocated timeline is crucial for avoiding B Notice penalties, which are $270 per mismatched name and TIN combination listed on the Notice CP2100 and CP2100A.
IRS Notice 972CG, which outlines accrued penalties, is automatically generated and expected to be sent about a year after the receipt of a Notice CP2100 or CP2100A.
It’s critical to follow each step required in IRS Publication 1281 and document compliance. These records are essential for requesting abatement for a Notice 972CG penalty.
13. How do I request B Notice penalty abatement?
A Notice 927CG penalty should be answered within 45 days. If a filer needs additional time to submit a response, a request should be submitted to the address on the notice.
To reduce the applied penalty, a filer must establish reasonable cause by performing all of the steps required for a B Notice and performing annual solicitations for missing TINs. If reasonable cause is established, the IRS will issue a Letter 1948C stating that the explanation given was acceptable.
IRS Publication 1281 Documentation
The best formula for abatement seems to involve carefully and exhaustively documenting a filer’s compliance with each step of the required procedures in IRS Publication 1281. This includes providing the following information:
- Date of the NoticeCP2100 receipt
- Confirmation of a records review to identify first and second B Notices
- Document requests, including examples of the requests for first and second B Notices, and their mailing dates to evidence compliance with the 15 business-day window
- Categorization of items identified in the Notice CP2100 and CP2100A that weren’t sent B Notices because they were either exempt recipients, annual-solicitation recipients, or provided an updated TIN after Form 1099 reporting but prior to receipt of the Notice CP2100
- Evidence that error documents have been collected
Confirmation of backup withholding if valid cure documents weren’t provided
14. How can an organization reduce B Notices?
There are two common ways to mitigate the chances of receiving a B Notice.
Robust Payee Documentation Process
Although Forms W-9 aren’t technically required for payees receiving payments subject to Form 1099-MISC and 1099-NEC reporting, most organizations still file them. Collecting and validating Forms W-9 from all US payees and ensuring the proper information is captured and maintained for reporting purposes can significantly reduce B Notices.
Demonstrating the organization takes Form 1099 reporting compliance seriously is an important piece of a penalty-abatement request.
TIN matching is a free service offered by the IRS; it tells a filer if a name and taxpayer ID is a match or mismatch. A person in the filer’s organization must sign up as an e-service user and register the organization for a TIN-matching account. If an organization isn’t comfortable with allowing direct access due to certain liability and personal disclosures, find a third-party provider that can submit TIN-matching files on the organization’s behalf.
The IRS and tax professionals recommend using the TIN-matching system whenever Forms W-9 are collected from payees, so that combinations can be validated immediately. The alternative to real time TIN matching is to submit a bulk upload of the name and TIN combinations required to be reported each year once the reporting population has been finalized. This provides an organization with a window prior to submission of a Form 1099 file to request an updated name or TIN.
Even if an organization isn’t able to procure a valid TIN in time to include it in a Form 1099 filing, the TIN can be solicited before receipt of a Notice CP2100. This helps to avoid the time-crunch and administrative requirements of following the B Notice procedure.
We’re Here to Help
To learn more about B Notices and how to remain compliant, contact your Moss Adams professional.