IRS B Notices
IRS B Notices – Backup Withholding
If you must take out backup withholding or you are subject to backup withholding, we can help meet the IRS requirements. Usually the IRS requires 1099 issuers to withhold taxes from recipients when they do not pay their taxes on time. This is called backup withholding.
Missing TIN (Taxpayer Identification Number)
This is your social security number, employer ID number, etc. You may have to get an ITIN for aliens, or an ATIN for adoption situations. Sometimes the number is written incorrectly–there can be a missing or extra digit.
CP2100 and CP2100-A
The IRS sends a CP2100 or a CP2100-A notice when they see an incorrect ID number. If your payee does not give you a correct ID number then you are required to begin backup withholding immediately unless they can prove that they are exempt.
First IRS B Notices v.s. Second IRS B Notices
These IRS B notices instruct you to send out the W-9 first to determine exemptions, etc. Backup withholding should start within 30 days. Visit the IRS’s website for more information. Non-resident aliens are also subject to backup withholding.
Letter 3851-B – Employment Tax National Research Project (NRP)
This is the IRS B notices and B letters the IRS sends as part of their Employment Tax National Research Project audits. It is said to paralyze businesses across the country. This is considered to be the most in-depth payroll tax audit the IRS has conducted in the past 30 years. The letter says that the audit is part of a “compliance research exam.” This is really an indication that worker status relationships, employee V.S. contract labor, and other payroll issues, are being targeted. This audit will include every aspect of the taxpayer’s payroll arrangements; independent contractor relationships will also be examined.
If the IRS finds that the taxpayer is not in compliance, they will probe into why they are not. The audit will expand to cover every aspect of payroll they can find. Unfortunately, the letter does not inform the taxpayer of the scope of the audit.
As always, we request that you contact us before contacting the IRS in mostly any matter. Issues that may seem simple on the surface can get ugly, fast. This audit may also trigger a state audit. You must be prepared for the worst possible outcome, including referrals to Criminal Investigation.
Letter 3850-B
This IRS B notices and B letter is the same as the 3851-B except that this 3850-B letter is sent along with the first IDR (Information Document Request). This will help you see some of the issues the IRS wants to address. The IRS should follow that with a phone call. This letter is more to the point in that it is more specific about the issues that will be addressed and the extended related issues they will develop.
SS-8 Letter
This is the letter that the IRS sends to employers to determine worker status. When a contract labor person contacts the IRS and informs them that withholding tax should have been taken out of their paychecks, the IRS uses this letter to contact the employer to investigate. There are other ways this investigation comes about, too.
The IRS will be conducting a very in depth review of all the facts and circumstances in this worker relationship. The IRS is going beyond the traditional 20-factor common law test. The approach now is to consider the three categories of evidence. They do not, however, address the relief provisions, such as the Classification Settlement Program relief that the IRS National Office developed.
Second Type of SS-8 Letter
The taxpayer may receive an SS-8 letter that an actual determination has been made. This often comes when there is no response to the first SS-8 letter sent that requested the information. You can expect any determinations to say that the worker was really an employee. You should never ask the IRS to make the determination. We can assist you in putting forth your best arguments to convince the IRS that you correctly treated the worker as contract labor. We urge all employers to consult us regarding the rules for contract labor V.S. employees before paying workers.
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