CONUNDRUM: What name should be entered on
the NAME line of a
Form W-9 when the business is an
LLC that reports its earnings and expenses to the
IRS on Schedule C of form 1040.? This name is
what will appear on the first line
of the 1099 Form.
Pick one of these choices- all of them have
pitfalls (Read the analysis of choices below)- none
of them are palatable, but for now, we have to make
a choice:
a. Per Instructions on the W-9 and 1099 one should
put their first and last name and social security
number on the Tax ID form
b. My last call to the IRS asking for clarification
ended up with there saying, "do not provide a W-9
to the Customer, instead give them a
copy of the 147C letter - a TIN validation.
c. Ignore W9 and 1099 instructions and put your
business name and business EIN number
d. Put your first and last name on line one of the
1099 and your business name on line 2 and use the business EIN
number
e. Acquire an EIN number under your First and Last
name and use that on the W9 form.
Analysis of Choices
a. Who wants to give their customer their social
security number?
When your customer sees the W-9 completed with a name other
than the one they are writing business payments to,
what impression does that give of your business? It confuses
the customer and could give the impression that you
are too small time
and using other vendors may prove to be less of a hassle.
b. Really? The customer asks for a W9 form and
instead you provide a
147C letter? Customer will not be
pleased!
How complicated is a request for a W9? They now have
the impression that you cannot follow a simple request!
And
should the IRS come a knocking on your customers
door and ask to look at the W-9s will they accept a 147C letter?
Since the instructions on the W-9 and 1099 specifically
request a social security number, First and Last
name the IRS agent
completely missed the mark when she offered the 147C letter
as a solution. The 147C letter only confirms the
name and the
EIN of the business, nowhere does it mention the owners
social security number.
c. Several of my calls to the IRS resulted in
the agent recommending to use the business name and
EIN on the W-9.
Of course you will have to sign the W-9 knowing that it
contains information that is NOT what the IRS
wants.
It has been our experience having completed W-9s with
this option for the last 10 years that our
customers have not
been inconvenienced and have NEVER received a CP2000 letter (see why it might matter
below) .
My best guess is that the CP2100 looks for name
and EIN match and in fact the business name and
business EIN do MATCH! While this seems
like the best choice, you have to sign your
name "UNDER PENALTIES
OF PERJURY" that it true, complete and correct
when in fact it is not completed correctly.
d. Non Matching Name and EIN may be likely to kick
out a CP2100 letter (see why it might matter
below).
However we have been providing First Last Name of owner and
the EIN of the business for several years without
our
customers receiving a CP2100. We have yet to hear from
customers that there is a mismatch on a CP2100
notice.
As QB advisors we are often asked what needs to be done with
the CP2100 notice, and to date any CP2100 notices
clients have asked us about have not included our name.
When you read the instructions on backup
withholding
it explains the matching process. See why it matters
below.
e. We have tried this option as well. I
attempted to complete an SS4 application online,
and even tried to call it and request
a special EIN number for my personal name over the phone. Since at the time this
article was published (9/2013) the
W-9
instructions says to use your first and last name and an EIN number if you have one under that name,
I
thought I might acquire and maintain 2 EIN numbers for the
same business.
Unfortunately, the instructions say DO NOT use
your EIN in place of your social security number.
By completing an SS-4 to acquire an EIN under my personal
name you will be declaring to have a business
under your personal name
and you need to provide details about a business that does
not exist. Your business operates as an LLC,
not as a sole proprietorship.
Nowhere in the instructions and the form can I figure a way
to complete it without declaring I have a new
business.
Why would it matter later? :
Section 3406(a) (1) of the Internal Revenue Code
provides that the payer shall deduct and
withhold 28% income tax from a reportable
1099 payment if either the payee fails to
furnish the payee's Taxpayer Identification or the
Secretary of the Treasury notifies the payer on a
form
CP2100 or CP2100A that the Taxpayer Identification
furnished by the payee is incorrect (2 out of 3
consecutive years).
Section 6721 provides a payer may be subject to a
$50 per 1099 return failure to include a correct
payee TIN or $100 intentional disregard per return.
And we NEVER want to subject our customers to a
penalty or fine!
The goal of the 1099 reporting system is to help
the IRS identify tax returns with underreported
income. lf you receive a 1099 with your business
name and file the business taxable income under your personal name,
the IRS matching system breaks down. A
fix to this entire conundrum would be for the IRS
to modify its database to included a FILING TAXID associated with the EIN number, this new
field would allow them to accomplish their goal and
allow us to complete the forms with business
information.
What is the matching process? The
backup withholding publication of the IRS
explains the process as follows
" The information returns you file must include
a correct Name/TIN combination to allow us to match
the information reported against the income
included on the payee’s income tax return. We check
whether a Name/TIN combination is correct by
matching it against a file
containing all social security numbers (SSNs)
issued by SSA or against a file containing all
employer identification numbers (EINs) issued by
IRS. Then we compare the name control
on the payee document (if provided) to the name
control on file. If a name control is not provided,
we develop it from the name(s)
provided on the first two name lines
(up to 40 characters for each name line including
spaces) of the information
return. If we can match a provided name
or a developed
name control to the name control in our
records, we consider it
correct. If no match is found using this
process, we consider the Name/TIN combination to be
incorrect. The chart on the back of Form W-9 has
information for payees about “What Name and Number
to Give the Requester” of Form W-9
Conclusion?
You need to come to your own conclusion, but we
are sticking with choice D on preparing a 1099 and
W9 for a sole member LLC based on the matching
process described in the backup withhold
publication.
We do need to be careful of where the IRS is headed
on this problem. The bottom line is if IRS changes
the way it develops the name control, then a CP2100
notice may be issued to your customer. Your customers could be faced with a potential penalty or
the requirement to withhold and submit income tax
from payments made to your business.
Picture the busy customer's accounting
department when they receive a CP2100 notice which
will not include any penalty or tax due. They
immediately file it in a folder for their CPA
to read. However, the CPA is not given the folder
until
sometime next March of the 2nd taxable year
after they have filed 1099s using the same
incorrect name and tax id number. When you receive
a CP2100 notice 2 years in a row with problem data on the 1099
any future payments to that vendor must contain a 28%
withholding income tax. This spells disaster!
QuickBooks does not have the capability of tracking
and reporting withholding taxes on 1099s,
your customer wants no part of it and looks for
other vendors to provide services!
Below is an example of an accurately prepared
1099 for a LLC business along with screenshots of
instructions.
