On Jan. 23, the IRS launched its new Form 1099 reporting portal, Information Returns Intake System. Filers now can request an extension for the forms, produce both paper Forms 1099 for its recipients and an electronic file for direct submission to the IRS, and produce corrections of Forms 1099 for its recipients and the agency.
E-filing previously required a business to be able to convert reporting data into the appropriate electronic format. This called for a technology department with the knowledge, resources, and time to develop and maintain the process or the use of a third-party software.
Paper filing was and still is available, but it requires businesses to file Form 1096, obtain the appropriate paper submission forms from the IRS, and fall outside of electronic reporting parameters. Those parameters require electronic reporting when the business has 250 recipients or more per form type or is a financial institution.
The proposed regulations will require most businesses to e-file information returns. Under Proposed Regulation Section 301.6011-2(c)(3)(i) and the removal of the non-aggregation rule under Section 301.6011-2(c)(1)(iii), in the first year, a business will be required to e-file if it has 100 or more information returns to file in the aggregate.
In the second year, the threshold will require e-filing if 10 or more information returns are required in the aggregate. Not only has the threshold number of returns decreased when determining whether e-filings are required, but the new rules also will require businesses to aggregate their information returns.
Stated differently, a business will determine whether to e-file based on all their information returns together, not by looking at the threshold per form type as was allowed. This rule also will apply to partnerships. Finally, the Treasury Department and the IRS propose that partnerships with more than 100 partners must e-file regardless of how many partners require information returns.
But IRIS comes with its own complications. If you’re looking to change your Form 1099 processes to incorporate IRIS, consider several points.
Transmitter Control Code. The IRIS TCC is necessary to begin creating forms and not just filing the form once properly completed. It differs from the TCC for e-filing information returns and thus requires a separate application. To complete the application, a user must be a responsible officer on behalf of the business and have an IRS account and an e-services personal identification number. Once the IRIS TCC application is submitted, the TCC code may take up to 45 days to receive.
Submission size. For filers with larger populations, the IRS allows a business to populate a template and then generate a CSV file, though it can only include up to 100 forms per file. If the filer has a population larger than 100, the business must create and submit additional files. The IRS website notes that additional testing for large volume filing will take place in May 2023, demonstrating that the IRS will continue working on system improvements.
Submission review. Unfortunately, IRIS provides limited data review prior to submission—one of the downfalls of the process when compared to third-party systems. Currently, the system prevents users from advancing if they leave a necessary field blank or enter an incorrect format. Thus, any filer using this system will have to conduct a stringent review of their data before submitting i to ensure quality.
A resolution for this concern is to use a form collection and validation tool during the onboarding process. Onboarding is the best time to collect and validate Form W-9 information to minimize any possible incorrect name and tax identification number issues. But most businesses rely on third-party reporting systems for such activity, which won’t apply if the process is switched to the IRIS system.
While the availability of a new reporting process furnished by the IRS is welcome news, especially for smaller businesses, there are still open questions and concerns. We look forward to seeing how the IRS will continue to improve and grow IRIS.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Colin Brien is the chief growth officer at Comply Exchange. He is an information reporting specialist who focuses on developing efficient and cost-effective solutions in information reporting and withholding through the use of technology and practical processes.
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