IRS Electronic Filing - 3 Internal Steps for the Vendor Team To Start Now
Debra R Richardson, MBA, CFE, APM, APPM, CPRS
Training Vendor Management Teams To Avoid Fraud, Fines and Bad Vendor Data | Plug Up the Gaps in Your Vendor Process
You are probably aware by now that the IRS has finally issued final regulations on e-filing for businesses that reduced the threshold of electronic filing from 250 to 10. It's been looming for years, but it's finally here and starts with Tax Year 2023 that will be reported in 2024.
Now many of you have already been filing electronically - while some will now have to determine if you file more than 10 returns of any type, and if so, whether you will e-file using the legacy Filing Information Returns Electronically (FIRE) system or the new as of last year Information Return Intake System (IRIS).
When I was a practitioner, we managed 140k active vendors across 7 different ERPs, and between 24k-30k were 1099/1042 reportable each year. In preparation, starting in late October, but definitely by November, there were at least three (3) steps in our timeline to make sure we were ready for the IRS e-filing process.
While we used the legacy FIRE system, no matter which system you use, or whether you outsource tax filing to a provider, you may find one or all steps useful.
Speaking of useful, register for a free webinar 20 Tips in 20 Minutes: Handling US Federal and State Reportable Vendors
Step 1: Get Users and Transmitter Control Code (TCC) in Order
Each year we would take inventory of our Transmitter Control Codes and also make sure any new team members were registered. While different users can use the same TCC code, each had to have their own account. Multiple TCCs may be required based on IRS e-Filing option, form (1099 vs 1042 e.g.), different EIN, volume of records, etc.
This year, the process of taking inventory of your TCCs may be even more important for you. Legacy FIRE TCCs that were issued before September 26, 2021 are now deactivated if a new application was not submitted prior to August 1, 2023. Missed the deadline? No worries, you can still submit the application, but a new TCC will be issued. Do it now since TCC applications can take up to 45 days.
Step 2: IRS TIN Match
For your reportable vendors (I recommend all), verify that the Vendor Legal Name and IRS Taxpayer Identification Number (TIN) you have on file match IRS records. Just try explaining why your company may be liable for $310 per return for missing or incorrect TINs after you receive that IRS notice. Check out the reasons for penalties and their increase on the IRS General Instructions Page.
Perform the IRS TIN Match free in bulk or single lookup via the IRS e-Services at no cost (requires registration), or via other tax reporting or validation resources. (see free download Vendor Validation Reference List with Resource Links)
For vendors that failed the validation, reach out to collect corrected information before it's time to file.
Step 3: Accounting System / ERP - Output File
In order to e-File with the IRS, you have to provide the required vendor information in the format required by the platform that will be used. That means that you have to test the output file from your Accounting System / ERP to make sure it's pulling the right vendor data and that it's in the right format for upload.
领英推荐
The testing timeline was critical - we had to make sure that it was 1) after the Accounting System / ERP tax year patches or updates to our system; 2) before our annual system blackout period and 3) before it the FIRE test system window closed.
Don't forget to pull in the Systems Team verify the patches or updates were made and to also assist in troubleshooting vendor data that is (or isn't) being pulled. It wasn't until the first tax reporting year with an inherited system that one of my clients found there was a different field they didn't know about that was being pulled for the 1099 reportable name. Ouch.
Even if you are not using an IRS e-filing system (outsourced filing 1099s), you still may need to perform this step to send your managed provider the vendor information they require tax filing.
Links for IRS E-Filing Option - External Testing
Not in scope here, but I did want to provide some helpful links of where you can get more information on testing for each IRS e-Filing option:
Avoid 6 Risks When Handling Federal/State Reportable Vendors
Attend the free 20 Tips in 20 Minutes: Handling US Federal and State Reportable Vendors webinar on November 8, 2023 from 1-1:30pm ET.
Sponsored by Financial Operations Networks (FON) here is what you'll discover:
Click to Secure Your Spot to watch live or on-demand.
Don't forget to subscribe to my monthly newsletter sharing content that will help you avoid fraud, compliance fines, and bad vendor data in the vendor process.
Controller at Hamman Oil & Refining Co.
1 年We missed the deadline to apply for the new TCC code and now cannot seem to access the application. What is the answer?