How TIN Verification saved one company expensive IRS fees weeks before tax filing
TIN Matching + W-9 Verification |Case Studies |April 28, 2021
Errors in reporting inaccurate 1099-Misc forms during tax reporting time can potentially lead to costly mistakes, including potential penalties, fees and the time it takes to track down the correct information.
If the business or individual name and TIN reported on a 1099 form does not match up with the Internal Revenue Service (IRS) database, an error occurs. One missing or incorrect digit or letter on a form can lead to an improper filing, which is all that it takes to possibly trigger penalties and the need to pay or withhold taxes for a 1099 Contractor.
To help our Customers identify errors before they are hit with a fee and the need to follow up on IRS notices, PlusOne Solutions offers TIN verification through our Tax Identification Number (TIN) Matching Service.
TIN Matching is a proactive service that involves collecting a business’s tax reporting name and TIN, which is typically provided on a W-9 form, then compared to the IRS database before filing your 1099 Forms. This process identifies any combinations that are incorrect ahead of time so the company can inform a contractor, before allowing work or payment, that they must submit a valid combination to you. This will avoid IRS penalties altogether.
Here is one situation where TIN Matching saved one of our Customers from expensive IRS fees just a few weeks before filing their end-of-year taxes and 1099’s.
TIN Verification Case Study Summary:
As tax season was quickly approaching, the Finance Controller of one of our Customers called us to see if we could help them with their year-end 1099s. Unfortunately, the finance department could not verify that their contractor W-9 Forms were on file or even if they verified against the IRS and were concerned about the number of notices they would receive from the IRS and the need to withhold taxes. The Finance department found boxes containing more than 15,000 hard copies of W-9 forms dating back 10 years. Although they had the documents, they did not have the resources or the time to handle it themselves.
Since contractors registering with PlusOne Solutions provide specific company data (including their TIN information), the Customer asked us to assist in cleaning up their data and verify the information against the IRS.
PlusOne Solutions was able to use a combination of company data found within the PlusOne Solutions database and the hard-copy W-9 forms to perform TIN Matching. For any missing or TIN and name combinations that came back as an error, PlusOne Solutions worked with the contractors to obtain missing or corrected information.
The challenge was two-fold.
First, it was difficult to ensure that 100 percent of W-9s were received by the Finance Department. The department that ran recruiting for the contractors was charged with collecting and forwarding W-9 Forms when the contractor was new. This was difficult because the process was manual in a department with a high turnover of personnel and relied on the collection of paper documents that were hand-signed and faxed or emailed. It was also only a small part of the paperwork to be obtained by the recruiters, who had their hands full with price negotiation, agreements, and the collection of other documentation such as insurance and licenses.
The second challenge was that they did not have the means to track when a W-9 Form had been verified with the IRS as a valid TIN and business name combination. In addition, they had such a large volume of contractors that to manually verify was too time-consuming.
PlusOne Solutions collected all the boxes containing W-9 documents as well as an electronic file of all contractors paid in the current reporting timeframe.
Within 10 days, the PlusOne Solutions team sorted and analyzed all the information by comparing the W-9 data and general company information against our internal databases and found a high match rate compared to the W-9 information. Additionally, for the companies where a 1099 was required but the W-9 was missing, PlusOne Solutions obtained the required information to verify against the IRS database.
Our technology team worked with the IRS electronic filing system to create an electronic file that would meet IRS standards and appropriate codes to verify the information against the IRS database. With the Customer authorizing PlusOne Solutions as an agent, we were able to verify the information and date and time stamp the verification.
Through the process, PlusOne Solutions identified contractors who were missing W-9 information. In addition, more than 10 percent of the contractors who had provided W-9 information did not pass IRS validation. If it were not for the TIN Matching process, these inaccuracies would have resulted in IRS penalties.
For all the contractors where the information did not match or was missing, PlusOne Solutions worked with the contractors to collect the missing or incorrect information before reverifying with the IRS. We followed a process that would avoid or minimize penalties from the IRS if we were unable to collect a valid TIN and name combination for companies that had already been paid in the past. This due diligence included documentation showing the method to collect new information, the number of outreach attempts, and dates of outreach.
This enabled the Customer’s finance department to accurately file the information and inactivate companies where the information could not be validated or corrected.
PlusOne Solutions worked with the Customer’s operations team and the accounting department to brainstorm and develop a new process flow where the W-9 Form is collected when the company is recruited to the network. This involved converting the W-9 Form to an electronic document that was included with the contract packet and other documents to be completed and signed electronically. After the contract packet is signed and executed, it is automatically routed to PlusOne Solutions for processing where the TIN and name combination is verified against the IRS database and results reported back via system integration.
This simplified the process for the recruitment team to help them be successful in the collection of not only the W-9 Form but their requirements for recruitment and provided visibility to accounting. The W-9 collection process was streamlined so that valid W-9 information is now collected upfront and verified before work even begins.
Under tight deadlines, PlusOne Solutions was able to verify the information with the IRS and ensure the capture of the W-9 information, and the potential for expensive IRS fees was significantly reduced for the immediate tax year.
As a result of the work efforts and TIN verification by the Customer and PlusOne Solutions, changes were made to the Customer’s onboarding process to include the verification of tax information against the IRS by PlusOne Solutions on the Customer’s behalf at the time of registration and then provide validation to the Customer. Companies with incorrect information are contacted by PlusOne Solutions and given options on how to identify their correct TIN and Business Name. If validation is never obtained, it results in withholding of the payment until the correct information is verified and recorded.
“PlusOne Solutions was a true lifesaver for our organization. We value the partnership and their efforts on this project,” the Customer’s finance manager said.
About PlusOne Solutions
PlusOne Solutions has been an industry leader in the risk management field by specializing in compliance programs that meet the complex challenges of geographically dispersed contractors, vendors, and employee networks. PlusOne Solutions protects companies from possible financial, legal, and reputational risks associated with contractor and vendor relationships while creating safer work environments. To learn more about our TIN verification and other services, visit our website.
Contents are provided for information purposes only and should not be construed as legal advice. Users are reminded to seek legal counsel with respect to their obligations and use of PlusOne Solutions services.
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