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How Accounts Payable Departments and Nonfinancial Organizations Can Prepare for Year-end Reporting

How Accounts Payable Departments and Nonfinancial Organizations Can Prepare for Year-end Reporting

Who is Impacted?

Any U.S. or non-U.S. company with an Accounts Payable Department or any non-financial company that makes payments to vendors will be interested in some tips for preparing year-end information returns and related workpapers for 2019.

What Changed?

State Information Reporting and Withholding. These rules change all of the time! For those making vendor payments that require State Form 1099-MISC reporting or backup withholding, be sure to check the latest updates to any procedures for that State. This type of research can be tedious. Here is a link to all of the State websites for reference:

IRS State Law Guide

Were there any changes to your policies and procedures in 2019? In terms of vendor payments, some of the more important processes to document include how to determine the following:

  • Is the payee a U.S. or non-U.S. person? o How are withholding certificates reviewed? o How are presumption rules applied?

  • Is the non-U.S. payee a corporation, individual (human), or partnership?

  • Is the income fixed, determinable annual, or periodical (FDAP) income?

  • Is the non-U.S. payee receiving FDAP income or effectively connected income?

  • Is the FDAP income U.S. or non-U.S. source income?

  • What is the correct amount of withholding to apply?


Sometimes during the year, we notice instances where folks use workarounds instead of fixing a broken process. Where have we seen this? Very specifically, when using checklists and electronic withholding certificate reviews. Sometimes the checklist or electronic application does not yield a nice clean result as valid or not valid. In certain instances, we may see a withholding certificate that may be valid in certain instances, such as for foreign status, but not in others, such as treaty benefits. When can you ignore the application results in your report? It is important to document the methodologies in your vendor/payee files you use when taking a position on those results and to update policies and procedures. This documentation will come in handy in the event of an Internal Revenue Service Audit. Additionally, please see:

Internal Revenue Manual Section 4.10.21, U.S. Withholding Agent Examinations – Form 1042

Withholding Certificates. Are you using the latest revision? If you are using a substitute form, have you updated that form to match the latest IRS revisions? Vendor payments generally include excluded nonfinancial payments for purposes of chapter 4 or the Foreign Account Tax Compliance Act. Because of this, many nonfinancial organizations choose to use the shorter form of the Form W-8 that does not require a chapter 4 status. This is a substitute form. Be sure to update this form when the IRS updates the official latest revision.

Electronic Recipient Statements. If you are sending electronic Forms 1099 or 1042-S, be sure you adhere to the rules for doing so. Be sure you have consent from your income recipients and confirm that the forms are in compliance with the formatting, posting, and notification requirements.

Additionally, please see:


Prepare for new Form 1099-NEC. The new Draft Form 1099-NEC requires far more information than its predecessor and looks more like a current Form 1099-MISC. There are six boxes for income related information. The IRS also included a box for State information. The due date for furnishing Copy B to the recipient is February 1, 2021, and Copy A must be filed with the IRS by February 1, 2021.

To file electronically, you must have software that generates a file according to the specifications in Publication 1220. The IRS does not provide a fill-in-form option for Copy A. Additionally, please see our article, and:


Final thoughts. It is important to remember that IRS agents are not looking for one off issues, but more systemic failures. Documentation of a solid and well-established process will provide comfort that the taxpayer has applied good faith efforts in maintaining compliance in this area.

How to Implement?

Organizations required to file any of the information returns mentioned in this article should consider the following:

  • Use the updated IRS tax calendar and consider syncing the deadlines with your own calendar application for consistency. Now that we have a new DRAFT Tax Calendar, it is a great idea to coordinate the deadlines and update your procedures for 2020.

  • Confirm all areas submitting information at year end are included in your procedures. If any new areas were added, confirm they have been trained.

  • Consider circulating a year end update to all areas in your organization at contribute payment information for year end reporting reminding them of key dates, processes and any new procedures.

  • Confirm your systems and reporting applications are updated to date for the many new forms released this year!

  • Coordinate with your IT Department to make sure any year end system freezes are synced with yearend reporting needs.

  • Confirm tax reporting vendors are aware of forthcoming updates to 2019 and 2020 Forms and withholding rates. There are updates to some of the new forms, for example Form 1065, and certain forms in the Form 1099 series are moving to continuous use forms. See the Instructions for Form 1097-BTC, Form 1098-C, Form 1098-F, Form 1098-MA, Form 1098Q, Form 1099-CAP, Form 1099-LS, Form 1099-LTC, Form 1099-OID, Form 1099-Q, Form 1099-SA, and Form 1099-SB.

  • Prepare for the new Form 1099-NEC and note what has moved to that form or changed on Form 1099-MISC. Make sure all impacted areas are informed and trained on this new form,

  • Review all draft and new forms to identify changes that may impact your organization and update process and procedure manuals to incorporate any changes required. Update policy and procedure manuals, training materials and presentations to staff.


Share your experiences with us in the comments or e-mail us!

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