Brokerage firms’ practice of issuing late and amended Forms 1099 is an increasing problem and a frustration for taxpayers and practitioners that often requires the filing of an amended return. This unfortunate trend has prompted some taxpayers to wait until they receive their anticipated corrected Forms 1099 before taking their tax records to their CPA. The result is that many taxpayers provide tax return data to preparers later than in prior years to avoid having to file amended returns.
This trend forces tax preparers to navigate an increasingly compressed filing season in which they sometimes receive necessary information less than two weeks before the initial filing due date. Late Forms 1099 create anxiety, confusion, and potential complications in the tax preparation process, and, for some taxpayers, they can cause an increase in tax preparation fees.
Taxpayers often request the practitioner prepare an amended Form 1040, U.S. Individual Income Tax Return, immediately upon receiving a corrected Form 1099 either to make certain they do not owe any late-payment penalties or to obtain their refund as soon as possible. Taxpayers also are often anxious to get the current-year tax return filed without extensions, if possible.
Current due dates
Currently, Forms 1099 (e.g., Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, and Form 1099-DIV, Dividends and Distributions) are due to the IRS and Social Security Administration on Feb. 28 (Feb. 29 in 2016; March 31 if filed electronically) and are due to taxpayers by Feb. 15 (Feb. 16 in 2016). Brokerage firms can amend and issue corrected Forms 1099 at any time.
The AICPA is advocating for legislation to resolve the increasing issuance of late and amended Forms 1099. The AICPA has suggested and commented on several legislative proposals (in September 2015, December 2014, January 2014, and April 2013) and plans to continue these efforts. Here’s a look at some of the potential solutions the AICPA is pushing for Congress to consider.
Allowing rolling-over reporting
On April 16 (perfect timing), 2013, the AICPA testified at a Senate Finance Committee hearing about the late and amended Forms 1099 problem and suggested Congress consider legislation that would permit taxpayers to report de minimis changes in their income from a corrected Form 1099 or amended Schedule K-1 (from a partnership, trust, or S corporation) in the year of receipt of the amended form.
Rolling over de minimis corrected amounts to the following tax year would streamline the tax return reporting process for both the government and taxpayers. For example, if ordinary dividends of $200 are reported on a tax return for 2014, the taxpayer should not need to file an amended 2014 tax return if the taxpayer receives a corrected Form 1099 showing $210 of dividends. Such a process is inefficient for taxpayers, tax preparers, and the government.
The IRS could provide a simple one-page form allowing taxpayers to report the amount shown on the taxpayer’s original return and the amount reported on a corrected or amended form. The differential would be included on the taxpayer’s current-year return (i.e., if a taxpayer receives a corrected Form 1099 in April 2015 for the 2014 or prior tax year, the taxpayer would report the difference on the 2015 income tax return). Because the change in income would be attributable to a corrected or amended form (as opposed to taxpayer error), good faith would automatically be presumed and late-payment penalties should not be assessed. Taxpayers would also have the option of filing an amended return.
The Senate Finance Committee’s recent September 2015 proposal included the AICPA-supported safe harbor for de minimis errors on information returns, payee statements, and withholding. Under this provision, information returns, with an error of no more than $100 in income, or an error of no more than $25 with respect to withholdings or backup withholding, would be considered as having been filed with the correct information. The AICPA appreciates the Senate Finance Committee’s efforts and continues to support safe-harbor provisions for de minimis errors on information returns.
Provide a de minimis threshold
The AICPA has also suggested a de minimis threshold (at least $50) for Forms 1099 and other information returns. This threshold would help with preparers’ workload issues by eliminating amendments for small amounts, and it would help prevent identity theft by allowing brokers to provide Forms 1099 more quickly and efficiently. Some taxpayers refuse to file their return early simply because they know they will receive a corrected Form 1099 for a few dollars.
Most recently, the AICPA has been working with Rep. James Renacci, R-Ohio, on a bill that was introduced Oct. 28, 2015, called the Information Reporting Simplification Act of 2015, H.R. 3856. The bill would provide a safe harbor for de minimis errors on information returns and payee statements (i.e., errors of no more than $100 ($25 for tax reported withheld) would be considered as correct, and no amended forms would need to be filed).
Another rollover option
On Dec. 8, 2014, as part of comments on S. 2736, The Tax Refund Theft Prevention Act, the AICPA recommended that reporting entities (including employers, partnerships, S corporations, and estates and trusts) be allowed to “roll over” small information return errors contained on Forms 1099 and W-2 and Schedules K-1 to the following year rather than filing amended or corrected forms. Specifically, the AICPA proposed that Congress provide an exception and allow the filing of a corrected information return in the current year if a single error amount differs from the correct amount by no more than $200 in income. The reporting entity would report the differential amount in the tax year following the error. The identified error and corrected information would also include the original date and transaction to which it relates.
A new website
The AICPA (in 2015 and 2014 comments) supports requiring the secretary of the Treasury to make available, within three years of enactment, a website or other electronic media to allow taxpayers to securely prepare, file, and distribute Forms 1099. Furthermore, the AICPA recommended that the website make available to taxpayers all relevant Forms 1099 and W-2 needed to file their tax returns. The AICPA believes such a website will reduce the cost of compliance, accelerate the receipt of information, and enable the IRS to more efficiently and effectively match reported amounts against individual tax returns.
Acceleration of due dates for filing information returns
In 2015 and 2014 comments, the AICPA generally supports the acceleration of the due dates for filing with the IRS information returns, including Forms W-2, W-3, and 1099-MISC. However, the AICPA is concerned about the use of a single deadline (e.g., Feb. 21) for all information returns. To provide more flexibility, the Senate Finance Committee’s recent September 2015 proposal included the AICPA recommended requirement for the payer or employer to file all information forms with the IRS within 15 days of the due date to taxpayers.
On Aug. 31, 2015, in an effort to assist with employers providing more timely Forms W-2, the IRS issued final and temporary regulations (T.D. 9730) and proposed regulations (REG-132075-14), stating that, starting in 2017, the IRS will no longer allow automatic extensions of forms in the W-2 series (except Form W-2G). The temporary regulations allow only one 30-day nonautomatic extension for Forms W-2. This will help, but the AICPA-supported relevant proposed legislation is still needed.
Practitioners’ next steps
Practitioners should continue to explain to their clients the reasons for the current situation and what the AICPA is suggesting to Congress to solve the problem. For more information on these tax advocacy efforts, see our Tax Advocacy Comments webpage.
Eileen Reichenberg Sherr, CPA, CGMA, MT, is a senior technical manager–Tax Advocacy at the AICPA.