Today TaxMama hears from George in California with this problem. “What course of action can a company take if a payee, who has already been paid for services rendered, avoids or refuses to give his tax ID information (W-9) for 1099 tax reporting purposes?”
This is so common. It’s something I’ve been lecturing about for decades. And it’s totally predictable if you’ve been fool enough to pay them without getting that information from them before handing over the check.
So, first of all, establish a new policy right now. NO ONE gets paid again without filling in the Form W-9 first. Also, get a copy of their business card and any advertising they have for their business (or print out a page of their website and put it into the file).
Now what do you about this particular turkey?
Simple. Send them a written request to provide the information on the W-9. Mail it certified AND e-mail it to them so you have two records of the information proving you tried to get it.
In the letter, request a response within 15-30 days (you decide) and advise your contractor that you will be filing all your 1099-MISC’s in January, as the law requires. Any 1099-MISC sent to IRS without a taxpayer ID number might cause IRS to investigate the payee, and may even result in an audit of the payee. Make it clear that you will not be asking again. And make it clear they will not be doing any more work for your company without this information.
That usually gets a response. Unfortunately, sometimes, it can be a violent response. So be very careful and tactful. But firm. You can’t believe some of the frightening, irrational behaviors I’ve witnessed from people who never planned to pay taxes on the income my clients have paid them. You’re going to see some real desperation because they no longer have the money to pay these ‘unexpected’ taxes.
This is another reason to make it clear at the outset that you need their ID numbers. They can price the work accordingly, taking into account the cost of paying tax on the income. And no one gets any surprises.
Oh, what’s if they still don’t provide the information? Do what you said you would. File the 1099-MISC without the ID number and in the space for the number, if your software will let you – enter “refused to provide”. If it won’t, include a cover sheet with a list of taxpayers who refused to provide their ID numbers.
And remember, you can find answers to all kinds of questions about recalcitrant payees and other tax issues, free. Where? Where else? At TaxMama.com[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]
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