© Avalara

Presented by Tim Teeter, Avalara

Best Practices in 1099 Management

© Avalara

Tim is in charge of product marketing at Avalara. His background in ecommerce, financial analysis and product strategy and development provide him with unique insight into the financial challenges of a growing business. Tim holds an undergraduate degree in Business from the University of Wisconsin-Madison and a graduate degree in Marketing from The University of Minnesota.

About Tim

Making sales tax less taxing

Agenda

• Welcome and Introductions

• The 1099 Challenge and Best Practice Tips

• Overview of Avalara 1099 Solution

• Avalara 1099 Demonstration

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Housekeeping

• Today’s webinar will last for approx. 40-45 minutes.

• Your phone lines are muted; to submit questions, type

them into the “Q&A” box.

• You can toggle between “full screen mode” and “control

panel view” by using the floating toolbar in upper right

hand corner of the screen.

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Polling Question #1:

How does your company currently

manage 1099 Compliance?

a. We have an automated solution

b. Manually

c. A combination of A and B

d. We don’t have a process

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THE 1099 CHALLENGE AND BEST PRACTICE TIPS

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Recently, the IRS said:

“I believe [tax information reporting is] the

source of the next generation of

innovation….[it’s] a potential new structure of

tax administration…a structure of

opportunity…and a fundamentally different way

to run our tax system.

“The thing you have to remember about the

[tax] gap is it’s like a deep shale oil reserve, it’s

not money sitting there that’s easily tapped, in

many ways we have tapped the easy money…

the real answer, the place where we have

leverage, is information reporting.”

-Doug Shulman, IRS Commissioner (4/6/11)

7

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Information Reporting Landscape

• The US Congress, Treasury Department and IRS are highly focused

on enforcing existing regulations or introducing new ones to close

tax gaps and increase tax revenue

– IRS hiring new staff to increase enforcement and compliance

– Increases to penalties for non compliance

• Challenges associated with Information Reporting impacts all

payment types (cash, checks, cards, etc.)

• Increasingly complex and continually changing regulations call for:

• A robust and flexible reporting tool that minimizes non-

compliance risks and financial exposure

• A payment form that streamlines the information reporting tasks

and processes

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The Rise of 1099 Economy

“Even though there may not be jobs in the conventional

sense, there is still work, that’s the whole idea of the 1099

economy. It’s just a different way of organizing the

economy.” Bill Fulton, Urban Analyst EMSI

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The Rise of 1099 Economy

• 1099-MISC produced in 2012 – 79.1 million

• 1099-MISC produced in 2013 – 87.5 million

– A 15% increase in form volume year over year(Source: IRS Publication 6961 2013 Update)

• 30 largest metropolitan areas – self employed individuals

have increased by 10%.

• Biggest changes have taken place in four metro areas

where the number of self-employed 1099 workers

expanded over 10% between 2008 and 2012.

– Seattle up 10%

– San Jose up 11%

– Houston up 12%

– Phoenix up 14%(Source: Economic Modeling Specialists International)

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Accounts Payable/Tax Operations Facing Challenges

Business Dynamics

• Managing FTE and Processing Costs

• Multiple Business Lines

• Increasing System Complexity

• Disparate Data & Processes

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Polling Question #2

Who must receive a 1099-Misc Form:a. Anyone who has made a payment for goods or

services in the course of your trade or business

b. All Corporations, including “C” Corporations and

“S” Corporations.

c. The person providing the service.

d. None of the above

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The Answer:

Who must receive a 1099-Misc Form:a. Anyone who has made a payment for goods or

services in the course of your trade or business

b. All Corporations, including “C” Corporations and

“S” Corporations.

c. The person providing the service.

d. None of the above

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Polling Question #3

How does your company stay on top of

legislative changes?

a. We follow state/federal websites

b. We rely on a third party service

c. We have an automated system

d. Other

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Challenges of 1099 Compliance

• 1099s are a statutory requirement

– Sooner or later you’ll be audited.

– Audits almost always result in back taxes and penalties

• Manual 1099 management:

– It’s labor-intensive

– Leads to inaccurate results

– Expensive

• 100% non-revenue generating activity

– It makes sense to automate with a technology solution

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Polling Question #4

When is back-up withholding required by the

IRS

a. When there is no W-9 on File or the

customer does not provide a TIN

b. If the form is not signed/certified

C. When the IRS says so or that the TIN is

invalid

D. All of the above.

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The Answer

When is back-up withholding required by the

IRS

a. When there is no W-9 on File or the

customer does not provide a TIN

b. If the form is not signed/certified

C. When the IRS says so or that the TIN is

invalid

D. All of the above

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Challenges of 1099 Compliance

• 1099 Compliance is extension of taxing ecosystem

– It’s an involved process – W9, B-Notice, TIN Validation, load,

print, submit

– IRS has a big stick

• 250 forms in aggregate require electronic filing with IRS

• Multitude of Forms

– Support for common form types (INT, MISC, DIV, 1042S, OID,

CAP, C, B, LTC, R, S, SA, 3921, 3922, PATR). Forms are added

over time and this is not a static list.

• Most every business will need to print, mail and file a

1099

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Challenges of W9/1099 Compliance

• FATCA (Foreign Account Tax Compliance Act) –

beginning to significantly affect W9/W8 compliance.

• W9 requirements - it all starts with the W9:

– As long as the supplier is active, you need to store

the W9 form.

– If the supplier is not active, the W9 needs to be kept

on file for 3 years after their last return is filed with the

IRS.

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Internal Challenges

• Decision makers – CFO, VP Finance, Director of

Finance (risk mitigation)

• Streamline tax reporting

• Comply with all regulations, reduce/eliminate penalties

• Eliminate manual nature of annual process

• Typical user – A/P Clerk (ease of use, automation)

• Having to purchase, install, integrate or operate software for

W9 retention and 1099 reporting every year

• Growing ‘1099able’ reporting responsibilities

• Potentially dealing with bad vendor data – B-notice and W9

remediation

• Source data systems vary – generally ERP and spreadsheets

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Polling Question #5

Has your company been audited for

1099 compliance?

a. Yes

b. No

c. I Don’t Know

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Best Practices for 1099 Management

• TIN Compliance

– Mismatched TINs per IRS - main issue.

– Three types of TINs – SSN, EIN and ITINs

– TIN need depends on the type or kind of payee your are dealing

with

• Individual

• Sole proprietor

– One of the more common errors is when all of the valid

information is provided on the 1099, but the wrong TIN is placed

on the form.

– Fraud reduction – use of Truncated Tax Identification Numbers

(TTINs)

• ***-**-1234

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IRS Publication 1281 –Backup Withholding for Missing and Incorrect Name / TIN(s)

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IRS Publication 1281 –Backup Withholding for Missing and Incorrect Name / TIN(s)

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Best Practices for 1099 Management

• I have a B Notice, now what?

– CP2100 or CP2100A notification letters

– Fewer than 250 – you will receive a paper copy

– More than 250 – you will be sent media

1. Compare to your records

2. No TIN – begin backup withholding on vendor.

3. When in doubt, send solicitation to the vendor (better to be safe

than sorry)

4. Begin mailing solicitations15 business days from the day of the

notice

5. If payee does not respond within 15 days, begin withholding on

any payments

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Best Practices for 1099 Management

• Insist on a completed W9 to be completed by EVERY

vendor you on board

– No TIN = reduced payment

• Up Front TIN Management will pay dividends down the

road

– Leverage IRS TIN Matching program

• Follow-up immediately with mismatched TINs

– Dreaded B-Notices

• Keep up to date on all IRS changes

• Year round effort to stay on top of 1099/W9 compliance

• Automate as much as you can of this process

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Why Automate your 1099 process?

• Risk Mitigation

– Streamline tax reporting

– Comply with all regulations, reduce/eliminate penalties

– Eliminate manual nature of annual process

• Ease of Use

– Avoid having to purchase, install, integrate or operate

software for 1099 reporting every year

– No more dealing with bad data – B-notice and W9

remediation

– Streamlined process

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CHOOSING AN AUTOMATED SOLUTION

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What to look for:

• Volume based service

• SaaS product delivery – all cloud based

• Real time TIN validation (individual and bulk)

• Support for all form types (INT, MISC, DIV, plus many

others)

• B-Notice / W9 remediation tools

• Print and mail forms by IRS mandated dates

• Electronic transmission to federal authorities Optional

combines state and federal (CSF) filing

• ERP Agnostic

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Why Cloud-based 1099 Reporting?

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AVALARA 1099 PRODUCT DEMONSTRATION

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Online Product Demos

• http://www.avalara.com/learn/videos/avalara-1099/

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Avalara’s Compliance Cloud Platform

Automated transactional tax compliance across the U.S. and over 100 countries worldwide

Making sales tax less taxing

QUESTIONS?