KPMG report: Avoid common errors when filing Forms series 1099

When planning for year-end reporting, taxpayers-filers need to take necessary steps to determine that the Forms series 1099 are correctly processed and filed timely.

The following report highlights certain guidance that may help avoid common errors encountered while preparing the forms.

The IRS in the fourth quarter of 2021 issued several new versions of Forms 1099 in the series of forms and corresponding instructions. Most of the newly published forms are “rolled forward” without substantive changes. However, taxpayers-filers need to carefully read the information provided in the general Form 1099 instructions and the instructions applicable to the specific Forms 1099. The updated forms include Form 1099-DIV, Form 1099-H, Form 1099-K, Form 1099-MISC, Form 1099-NEC, and Form 1099-R. 

All required fields need to be completed and accurately presented when filling in the Forms 1099.

• The required recipient information includes the recipient’s name, address, and U.S. tax identification numbers (TIN).
• The taxpayer-filer needs to provide the filer’s name, address, employer identification number (EIN), payment amount, and a name and phone number for a contact person. In addition, the taxpayer-filer's name and TIN must match the name and TIN used on the form (which is required for Form 945), otherwise, the filer may be subject to information return penalties. 

There are unexpected circumstances that may give rise to a Form 1099 filing requirement: 

• U.S. persons who receive payments through non-U.S. entities: When assembling Forms 1099 reporting, many withholding agents will initially treat any entity providing a Form W-8 as “out of scope” for Form 1099 reporting without considering the U.S. non-exempt recipients that passed up Forms W-9 through a chain of intermediaries or flow-through entities (i.e., attached to a Form W-8IMY).  For example, a payment made to a non-U.S. intermediary or non-U.S. flow-through entity may not initially appear to be reportable if the payment is not fixed, determinable, annual, or periodical (FDAP) income, but may be in scope of Form 1099-B reporting if it constitutes gross proceeds that is allocated to a U.S. non-exempt recipient.  As a result, the actual scope of reportable payments may be larger than expected.  
• Undocumented payees: In most cases, an undocumented individual or entity will be presumed to be a U.S. non-exempt recipient even if invalid or expired documentation is on file.
• Forms W-8IMY for which no allocation or underlying documentation is provided: Undocumented payees who receive payments through foreign intermediaries and foreign flow-through entities are typically presumed to be non-U.S. payees. Still, they may be presumed to be U.S. non-exempt recipients under Chapter 61 claw-back rules (e.g., applying to short-term interest/OID) in certain instances.

A final measure for all taxpayers-filers is that when finished preparing the Form 1099 reporting, reconcile the gross income and withholding amounts reported and determine that the information is consistent with the amounts reported on Form 945 (for electronic filers) and Form 1096 (for paper filers).  If a paper filer, also reconcile the number of forms being filing with the total number of forms reported on Form 1096. 

For more information, contact a KPMG tax professional:

Elis Prendergast | +1 212 954 1968 | eprendergast@kpmg.com