Take TIN Solicitations Seriously February 2011 Volume 3, Issue 6 Inside This Issue

February 2011
Volume 3, Issue 6
Inside This Issue
In the News
Canadian Auto
Deduction Rates..............2
AP Answers
When a Vendor Does Not
Provide a TIN....................3
TAPN Tools
1099 Reporting
Did You Know?
P-cards No Longer
Continuing Education
See page 4 for more details.
Diamond Sponsors:
Platinum Sponsors:
Cocktail Reception
Take TIN Solicitations Seriously
Beginning this year, filing
incorrect information returns
is a significantly more costly
mistake to make. Failure-tofile penalties have soared,
with some as much as six
times as high as they were
last year.
The Small Business Jobs and
Credit Act of 2010, which
was signed into law on Sept.
27, 2010, increased 1099 penalties across the board. Previously, the maximum allowable penalty for failing to file
accurate information returns
was $250,000 per organization. Starting with 1099s
filed in 2011 (for payments
made in 2010), the maximum
penalty has skyrocketed to
$1.5 million.
Increased penalties mean
it has never been more
important to ensure that
you file 1099s on time and
correctly. One of the most
crucial pieces of information your organization needs
in order to do this is each
payee’s taxpayer identification number (TIN).
Obtaining a payee’s TIN is
in most cases a straightforward process. Typically,
accounts payable departments
get the number from each
payee at the start of the business relationship. However,
this does not always happen.
When you fail to collect
an accurate TIN from your
payee, there are specific steps
you must take in order to
avoid hefty IRS penalties.
your payee’s TIN before issuing any payments.
Getting it Right the
First Time
“If you don’t get a W-9, then
you have to document how
you got the Tax ID and name,
when you got it, where you
got it, and what you have it
written on,” Foertschbeck
says. “If you are doing it by
telephone, then you have to
establish the fact that you
got the TIN and name on the
telephone. Perhaps you send
an email to yourself or your
supervisor to establish that.”
The Internal Revenue Service
requires you to collect TINs
from your payees before issuing payment. AP departments
usually send their payees a
W-9, which, when returned,
should include their name and
TIN. However, while issuing
a W-9 as part of your welcome kit to all new vendors
is a best practice, there is no
IRS requirement to do so.
All that is required for
most payees is that you
obtain a TIN when opening
the account. John Foertschbeck, a CPA with consulting
firm IRSCompliance, says
that there are multiple
ways to collect TINs from
your vendors.
“It can be done by telephone,
it can be done by contract,
it can be done through an
application or some kind
of agreement,” he says.
“A lot of times our clients
say the vendor invoice
includes their [employer
identification number]. But
we recommend that you
use a W-9 or some form of
substitute W-9, which can be
embedded in these contracts,
applications or agreements.”
Whether you have a W-9,
the important thing is to
document that you obtained
The IRS refers to this first
attempt to gather a vendor’s
TIN as the initial solicitation.
Having proof that you performed the initial TIN solicitation is crucial to avoiding
penalties later if the payee’s
TIN turns out to be incorrect
or if they fail to provide one
at all.
Obtaining TINs from
Foreign Vendors
The TIN solicitation process
is different when dealing with
foreign payees. Foreign persons are only subject to U.S.
tax reporting and withholding if they earn the income
performing services inside
the U.S. If they perform the
services outside the country,
then there is no requirement
to obtain a TIN.
However, you must collect
a U.S.-issued TIN, Individual Taxpayer Identification
Number (ITIN) or Employer
...continued on pg. 2
© Copyright 2011 Financial Operations Networks
Page 2 • www.tapn.com
February 2011
Card Programs Aligned continued...
Missing TINs do
not only refer to a
vendor who failed
to send you their
information, but
also to a TIN filled
out incorrectly.
All valid TINs are comprised
of nine numbers. If you
receive a TIN with more or
fewer than nine numbers, or
if one of the characters is a
letter, then you must treat it as
a missing TIN.
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Identification Number (EIN)
when a foreign person
performs services for your
organization inside the U.S.
Doing this means requiring
foreign vendors to complete a
form W-8.
Unlike W-9s, W-8s are a
requirement for foreign persons. Payees use the W-8 to
establish their non-U.S. status
and to claim a reduced withholding rate if a tax treaty
exists between their country
and the U.S. If you do not
receive a signed W-8 with a
valid U.S.-issued TIN, then
you cannot apply a reduced
rate. You must instead withhold the standard 30 percent
on all payments.
For more, see “Correct Withholding of Foreign Payments”
on TAPN.
Even though payments to foreign persons are not reportable when they perform work
outside the U.S., Foertschbeck still recommends that
you ask these vendors to
complete and return a W-8.
This ensures that the payee
is a foreign person, and not a
U.S. citizen living abroad.
“U.S. citizens are taxed on
their worldwide income
regardless of where they are
when they do the work,”
Foertschbeck says. “The most
important thing for you to
establish is whether this person is a nonresident alien or a
U.S. person living abroad.
Social Security Number:
“If you get the W-8 and they
are a foreign person, then you
don’t have to report them.
If they are a U.S. person,
then they fall in with all the
regulations regarding TIN
certifications, backup withholding, and reporting.”
Individual Taxpayer
Identification Number:
Identifying Missing
or Incorrect TINs
Provided your initial TIN
solicitation goes smoothly
and you receive a W-9 (or
other documentation containing your payee’s TIN), then
you can begin paying that
vendor without withholding any taxes. However, if
the vendor fails to send the
documentation or sends it
with a missing TIN, the IRS
requires you to begin backup
withholding immediately.
Knowing whether you
have a missing TIN is actually more difficult than it
sounds. Missing TINs do
not only refer to a vendor
who failed to send you their
information, but also to a TIN
filled out incorrectly.
For example, a correct TIN
should look like this:
Employer ID Number:
All valid TINs are comprised
of nine numbers. If you
receive a TIN with more or
fewer than nine numbers,
or if one of the characters is
a letter, then you must treat
it as a missing TIN. If the
payee refuses to furnish you
with a copy of their TIN or
gives you a “missing” TIN
(incorrect format), then you
must immediately begin withholding 28 percent from all
payments until you receive
the correct number.
While missing TINs are
apparent, identifying an
incorrect TIN can be challenging because you will
not immediately know there
is a problem. Incorrect TINs
are in the proper format, but
do not match what the IRS
or the Social Security Administration have on their
records. AP departments
often do not find out that
they have an incorrect TIN
on file until after they report
payments to that vendor on a
1099. When a 1099 contains a
...continued on pg. 3
In the News
Canadian 2011 Auto Deduction Rates — The Canadian Revenue Agency (CRA) has announced
the 2011 automobile expense deduction limits and the prescribed rates for the automobile
operating expense benefit. The rates all remain unchanged from 2009. First, the maximum taxexempt allowance employers can pay to employees for business use of a personal vehicle remains
at 52 cents per kilometer for the first 5,000 kilometers driven; and 46 cents for each additional
kilometer. The rate for the Northwest Territories, Yukon and Nunavut also remains 56 cents
per kilometer for the first 5,000 kilometers driven; and 50 cents for each additional kilometer.
Secondly, the taxable benefit for the personal portion of car operating expenses paid by employers
remains at 24 cents per kilometer and 21 cents per kilometer for taxpayers primarily employed in
selling or leasing automobiles. 
© Copyright 2011 Financial Operations Networks
February 2011
www.tapn.com • Page 3
Card Programs Aligned continued...
name/TIN mismatch, the IRS
will send you a CP2100 or a
CP2100A Notice.
If you participate in the
IRS online TIN matching
program, you can identify
name/TIN mismatches before
filing 1099s. This gives you
time to go back to the vendor
and ask for an accurate TIN
before the IRS requires you to
perform backup withholding.
IRS Code Section 31.3406(j)1(b) states that a TIN/Name
mismatch from the TIN
matching program does not
constitute a notice to begin
backup withholding.
For more, see “IRS
TIN Matching Program”
on TAPN.
all payments to that payee
immediately. You will also
have to perform an annual
TIN solicitation before Dec.
31 of the same year you
opened the account.
Although you only need
documentation of the payee’s
TIN during an initial solicitation, annual solicitations
require a W-9. Your backup
withholding requirements
continue until you receive
a signed W-9 back from the
vendor. If the payee fails to
return the W-9 during the
annual solicitation, then you
must perform a second annual
solicitation before Dec. 31 of
the following year.
Incorrect TIN
Missing TIN
After receiving a CP2100 or
a CP2100A alerting you to a
vendor name/TIN mismatch,
you have 15 days to send that
payee a backup withholding
notice, also called a “B” Notice, along with a form W-9.
This qualifies as your first
annual solicitation with that
vendor. If you do not receive
a completed W-9 within 30
business days, then you must
begin withholding 28 percent
on payments.
If the TIN is missing (or
provided in an incorrect
format), then you must begin
withholding 28 percent on
Even if the initial payments
made to a vendor do not
require a W-9 (only interest, dividends, and payments
Annual Solicitations
In the case of a missing or incorrect TIN, the IRS requires
you to perform annual TIN
solicitations in order to avoid
penalties. The solicitation
requirements differ based on
whether you received a missing TIN or if the IRS identified a name/TIN mismatch.
subject to broker reporting require W-9s), obtaining a W-9
is the only way to address a
“B” Notice.
“If you are making payments
to somebody with a W-9 on
file and all of a sudden you
receive a “B” Notice on them,
then the W-9 you have on file
is no longer good,” Foertschbeck says. “It’s trash.”
If you receive notification
again within three calendar
years that the vendor’s TIN is
incorrect, you must perform
the second annual solicitation
during the same period that
you performed the first annual
solicitation. However, you do
not send a W-9. Instead, the
second “B” Notice instructs
the vendor to contact the IRS
or Social Security Administration to obtain a certified
copy of their TIN. You must
continue backup withholding
until you receive their certified TIN on a W-9.
Following the steps presented
here—including performing
the appropriate TIN solicitations and backup withholding—will insulate you against
filing penalties. Not following
them, however, can lead to
mounting costs as you face
increased penalties and the
increased burden of filing
corrected returns. 
TAPN Tools
1099 Reporting
Filing 1099s is one of the
single biggest headaches
for accounts payable
departments. One of the
most daunting challenges
is making sure you are
following every step of the
process correctly.
TAPN’s 1099 Reporting
Flowchart takes the
guesswork out of the
process. The flowchart
clearly outlines each step,
including what to do if
your vendors fail to provide
a TIN and when to perform
backup withholding.
In addition, the flowchart
includes links to key
pieces of 1099 information, such as an IRS
table of reportable transactions, TAPN’s 1099
Planning Calendar, and
a TAPN article on 1099
Filing Basics.
Following the correct 1099
process can help protect
you from costly penalties.
TAPN’s 1099 Reporting
Flowchart is in the “1099
Information Return Reporting Templates” section
of AP Tools or at www.
tapn.com/1099Tools. 
AP Answers
Q: When a vendor does not provide a TIN, is there an easy way to verify whether it is an
exempt corporation?
A: If a payee fails to provide their Taxpayer ID Number, then you are supposed to begin backup
withholding immediately. You should only stop backup withholding when you receive a TIN.
That said, the IRS does allow you to use “the eyeball test” to presume a company is a corporation
if its name includes “Corporation” or “Incorporated.” Organizations can also earn the corporate
exemption if their name contains “insurance company,” “indemnity company,” “reinsurance
company” or “assurance company,” if the payer has a document on file clearly indicating the
payee’s corporate status, or if the payee provides a withholding certificate indicating they are a
foreign corporation. 
© Copyright 2011 Financial Operations Networks
Page 4 • www.tapn.com
February 2011
Did You Know? P-cards No Longer Reportable
New purchase card reporting
rules take effect this year!
The 2011 Instructions for
Form 1099-MISC have just
been released. Included in
the “What’s New” section is
a description of Form 1099K. This new form is where
payment settlement entities
will report to the IRS next
year the gross amounts of
payments cleared over
their networks.
The instructions go on to say
that, because settlement will
report these payments on
1099-K, there is no need for
payers to report credit card, pcard, or other third-party network payments made during
2011 on form 1099-MISC.
While Form 1099-K has not
yet been finalized, the IRS has
a draft copy on their website
that payment processors can
look over.
In addition to highlighting the
new p-card reporting rules,
the 2011 Instructions for Form
1099-MISC also describe new
rental property reporting requirements. Under these rules,
owners of rental property that
pay more than $600 in rental
property expenses must now
report those on a 1099.
Previously, individuals receiving income from a rental
property were not considered
participating in a trade or
business. A new law taking
affect this year changes that.
Finally, the 2011 instructions
also announce the end of a
pilot program that previously
allowed payors to truncate
individual taxpayer identification numbers. Starting
with payments made in 2011,
1099 filers must again show
the payee’s entire TIN on the
While the rental property and
TIN truncation provisions
serve to make 1099 filing a bit
more difficult than in previous
years, the announcement of
Form 1099-K reduces the burden for many organizations.
However, with the elimination
of the corporate and property
exemptions coming up next
year, the relief may only be
short lived. 
Continuing Education Opportunities
Earn CEUs for Certification
TAPN AP Leadership Conference
Monday, April 11, 2011 to Wednesday April 13, 2011
Where: The Ritz-Carlton, Buckhead Hotel — Atlanta, Ga.
Sharing Solutions to Meet the New Demands of AP
Live conference learning and
networking opportunities
Judy Bicking and Debbie Vander Bogart, highly regarded
professionals in the industry and members of TAPN’s advisory
board, will co-chair TAPN’s first live conference. At this premier
AP event of the year you will be able to:
• Get certified – there will be pre-conference training and
testing programs for the AP and Information Reporting
Certification Programs
• Network with colleagues at the continental breakfasts,
breaks, lunches and cocktail reception and hear informally
what works and what doesn’t
• Share ideas in roundtable discussions with your colleagues
on key topics that are important to AP leaders
Earn AP Certification CEUs
• Learn what solutions are available to solve your AP
challenges from the tabletop exhibitors
• Take home best practices that you’ll pick up from the 5
general sessions, 18 breakout sessions that you can choose
from and informal conversations with your peers
To register for this conference call us at 866-827-6389 or visit us
at www.tapn.com/LeadershipConference. 
© Copyright 2011 Financial Operations Networks
The Essentials
of Accounts
Payable Training &
Certification Program
TAPN/IOMA Accounts
Payable Certification Program
This intensive, one-day
training program will reveal
today’s best practices for
invoice handling, checks,
1099s, e-Invoicing, audits—
all the tasks of today’s
multi-tasking AP specialists
and managers.
Upcoming sessions:
San Diego • March 16, 2011
Atlanta • April 11, 2011
Chicago • May 2011
Exact 2011 dates and
locations are being finalized.
More information will be
available shortly.
To register for this conference
call us at 866-827-6389 or
visit us at www.tapn.com/
APSeminars. 