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What if a Contractor or Vendor Refuses to Provide a W-9 for a 1099?


In our last blog, Filing a Form 1099, we discussed business’s 1099 filing requirements. Here, we will discuss what a business should do if a contractor, vendor, or other person will not provide the information necessary for the business to prepare and file a 1099.

If a business (including sole proprietors) pays a contractor, vendor, or another person (collectively referred to as a “payee”) $600 or more for services, goods, or rent over the course of a tax year, the business is required to report these payments to the IRS on an information return called Form 1099. See, e.g., I.R.C. § 6041.  The 1099 must state the payee’s name, address, and tax identification number (TIN), as well as the total amount paid to the payee during the year, in order to be valid. See I.R.C. §§ 6041 and 6109(A)(3); Treas. Reg. §§ 1.6041-6 and 301.6109-1.

Form W-9 and TINs

IRS Form W-9 is typically used by a business to request a payee’s name, address and taxpayer identification number (TIN) so the business can issue a 1099 to the payee and to the IRS. Filling out a W-9 form isn’t very difficult as it really only requires a few pieces of basic information.

A business relies on the W-9 form as a source for a payee’s personal information, the most important of which is the taxpayer Identification number (TIN). In the case of individuals, a TIN is actually the person’s social security number (SSN).  In the case of businesses, a TIN is the business’s employer identification number (EIN).

There is no reason for a payee not to supply a TIN, unless the payee qualifies for an exemption (not likely), or is trying to avoid reporting the income or payments received to the IRS. Some payees refuse to provide this information to the business, however.

Payor’s Obligations

The business that is required to issue and file Form 1099 is responsible for requesting that its contractors, vendors, or other payees fill out and return Form W-9. Accordingly, a business who pays a person (including other businesses) more than $600 per year should have the payee fill out and sign Form W-9 at the time that the independent contractor, vendor, or other relationship commences, and prior to paying any sums to the person.  Indeed, filling out Form W-9 should be a provision of the contract or agreement which provides for the work, services, or goods, and payment therefore, although failure to include this requirement in the contract or agreement does excuse a contractor, vendor, or other payee from providing the required information to the business on request.

Once a business obtains a filled out W-9 from a contractor, vendor, or other payee, the business must keep the form, or a copy thereof, in its records, and use the information on the form to prepare its 1099. Form W-9 is not filed with the IRS.

The information provided by a payee to a business on Form W-9 must be protected by the business. A business is not allowed to misuse or disclose the information provided to it by a worker, contractor, vendor, landlord, or other person, or the business may be subject to civil and/or criminal penalties.

The business that does not obtain a taxpayer identification number from a payee or properly and completely fill out its 1099 information returns to include the payee’s information, including taxpayer identification number, or timely issue and file its 1099 information returns, may also be subject to penalties. There are exceptions to this, however.  For instance, if a contractor, vendor, or other payee refuses to provide the correct or complete information to the requesting business in order for the business to properly issue and file its information returns, this may serve to mitigate the imposition of any penalties on the business.

Finally, a business is required to timely issue and file any required information returns. A contractor, vendor, or other payee’s failure to provide a taxpayer identification number does not excuse the business from timely meeting its filing requirements.  (See below for discussion of what to do if a payee neglects or refuses to provide information required to be shown on a 1099 information return.)

Payee’s Obligations

A payee who receives a proper request from a business (including sole proprietors) to fill out a W-9 is required to fill out the form and return it to the business. The requirement is contained in section 6109 of the Internal Revenue Code and accompanying Treasury Regulations.  See I.R.C. § 6109(a)(2), (3); see also Treas. Reg. § 301.6109-1(b)(1) (“A U.S. person whose number must be included on a document filed by another person must give the taxpayer identifying number so required to the other person on request.”).  Indeed, the general instructions on page one of the current Form W-9 indicate that it is mandatory to provide a taxpayer identification number to a business who properly requests it:

An individual or entity (Form W-9 requester) who is required to file an information return with the IRS must obtain your correct taxpayer identification number (TIN) which may be your social security number (SSN), individual taxpayer identification number (ITIN), adoption taxpayer identification number (ATIN), or employer identification number (EIN), to report on an information return the amount paid to you, or other amount reportable on an information return. (emphasis added)

Backup withholding

Payments which are reported on an information return such as a 1099 tend not to be subject to federal income tax withholding. But a person (including a business) may be subject to backup withholding, at the rate of 28 percent, if the person neglects or refuses to provide an accurate and valid TIN when properly requested to do so by a business.

What if a payee provides an incorrect TIN?

When a business files a Form 1099 with the IRS, the IRS uses its TIN matching program to verify that the name and TIN on the Form 1099 information return match and are correct.

If the TIN is incorrect, the IRS will notify the business by sending the business a CP2100 or a CP2100A Notice and a listing of incorrect name(s)/TIN(s) reported on the 1099 information return(s) filed by the business. The CP2100 or CP2100A Notice from the IRS will state the requirement that the business begin backup withholding, at the rate of 28 percent, from future payments to the payee who supplied the incorrect TIN.

Generally the business must begin backup withholding on all reportable payments to the payee within 30 days of receiving the notice, although the business should carefully review the notice for specific requirements.

The notice to the business will also state the requirement that the business send a “B” Notice, along with Form W-9, to the payee within 15 business days after the business receives a CP2100 or CP2100A Notice.

If the payee does not correct his TIN, the business may be required to send additional notices to the payee.

What if a payee refuses or neglects to provide a TIN?

If a payee refuses or neglects to provide a TIN when properly requested by a business, the business should immediately begin backup withholding, at the rate of 28 percent, on any reportable payments made to the payee (and remit this amount to the IRS).

The business should also make up to three solicitations to the payee for the payee’s TIN, in order to avoid a penalty for failing to include a TIN on the Form 1099 information return filed by the business.

Finally, if a contractor, vendor, or other payee refuses or fails to provide his taxpayer identification number, the business should still fill out and timely file its 1099 information return(s) with a notation that the payee failed or refused to provide his taxpayer identification number.  Failure to file Form 1099 based on a person’s refusal or failure to provide his taxpayer identification number does not excuse the business from timely filing all required information returns.

Penalties

Both the business and the contractor, vendor, or other payee may be subject to penalties for their respective failures when it comes to information returns and providing the required information.

Payor Penalties

A business may be penalized, both civilly and criminally, for its failures with respect to its information return obligations. The following penalties are just a few examples of penalties a business may face:

        • Penalties for misuse of TINs
            If a business misuses or improperly discloses a payee’s TIN or other information proved on a W-9 in violation of federal law, the business may be subject to civil and criminal penalties.
        • Penalty for omitting information on an information return
            A business is required to include a payee’s name, address, and TIN on any 1099 information returns filed with respect to the payee. If the business fails to include the required information on the filed 1099(s), the business may be subject to penalties for such failures.
          • In order to avoid a penalty for filing a 1099 information return that omits the payee’s TIN, a business must generally make multiple attempts to solicit a TIN from the payee. The IRS prescribes certain rules and requirements for making the solicitations.  For instance, generally, a business must make a first annual solicitation for the TIN (generally by December 31 of the year in which the account is opened) and if a TIN is still not received make a second annual solicitation by December 31 of the following year.  Other solicitations may be required.
        • Other filing penalties
            A payee’s refusal to provide a TIN or other information to a business does not excuse the business from timely meeting its filing requirements with respect to information returns that must be filed. If a business is required to file a 1099 information return and fails to do so, or files late, the business may be subject to penalties for such failures.

Payee Penalties

A payee may face multiple civil and/or criminal penalties for failing to provide accurate information, including the payee’s TIN, to a business that properly requests the same. The following are some of the penalties a payee may face:

        • Penalty for failure to furnish a TIN
            If a payee fails to furnish a correct TIN to a requester when it is properly requested, the payee may be subject to a penalty of $50 for each such failure.
        • Civil penalty for false information with respect to withholding
            If a payee makes a false statement with no reasonable basis that results in no backup withholding, the payee may be subject to a $500 penalty.
        • Criminal penalty for falsifying information
            Willfully falsifying certifications or affirmations may subject a payee to criminal penalties including fines and/or imprisonment.

When To Seek Help

The Internal Revenue Code and IRS Regulations concerning information return reporting requirements are complex. The many nuances, penalties, and other rules can be confusing even to the savviest person, and their application often varies based on a particular set of facts and circumstances.

Because each situation is unique and has its own facts and circumstances, we recommend you contact a tax attorney to discuss and obtain advice as to your particular situation. Whether you are a business, a contractor, a vendor, or other person, the tax attorneys at the Politte Law Offices are here to help.

If you are unsure about your filing and/or reporting requirements, are facing penalties on account of any of the failures mentioned above, or have any other question or concern, we can help. Contact us today.

35 comments
  1. Joint Commissions account for 2 individuals. The commission payor paid Party #1 & Party #2 directly 50% of the commissions thru the year. At the end of the year, the company issues a 1099 to only Party #1 for ALL commissions. They are stating they only had a W9 on file for Party #1 completed and will not correct the 1099 reporting 50% commissions to each person.. For Party #1 to issue a 1099 themselves for party #2. Party #1 that received the 1099 for the full amount of commissions does not have the SS# of the other party to issue a 1099 and party #2 wont give it to them..

    • Who paid the commissions to Party #2? If company paid the commissions to Party #2, then Party #1 has no obligation to report the amounts paid to Party #2 to the IRS unless company was paying them to Party #2 on Party #1’s behalf with funds belonging to Party #1 (for example, a situation where this might be the case is if an attorney uses funds in his client trust account to pay his client’s contractor).

      The parties should look to their respective contracts or agreement with company and with each other (if any), as well as state law to determine their respective interests in the commissions and the joint account.

  2. My company issued a Form 1099-MISC for 2017 to an independent contractor for nonemployee compensation. It was timely issued by 1/31/18, and also filed with the IRS. On 2/13/18 my company received an email from the contractor requesting that we issue a corrected 1099-MISC because we used an “old” TIN. A new Form W-9 dated 2/1/18 was attached (He now has an EIN for his Subchapter S LLC). Is my company required to correct the 2017 1099-MISC? Or can/should we just use this new Form W-9 for the future?

    • Whether your company has an obligation to correct the Form 1099 depends on all the facts and circumstances, and looking to your company’s records and documentation should help answer your question.

      If there was a contract, your company may look at the contract to see who your company was required to pay, and/or whether the contract or payments were properly assigned from contractor to Subcontractor S LLC at any point. Also, look at to whom the payments were made. If your company properly made the payments to contractor instead of Subcontractor S LLC (as opposed to your company improperly making the payments to contractor when it should have made them to Subcontractor S LLC), absent a contract or agreement that provides otherwise, it would follow that your company should issue a Form 1099 to contractor because contractor was the recipient of the payments. In addition, look at invoices and correspondence from contractor or Subcontractor S LLC relative to payment. If contractor issued invoices, and payment was made to contractor in response, it follows that the Form 1099 should be issued to contractor. If invoices requested payment to Subcontractor S LLC, it follows that your company should have paid Subcontractor S LLC and issued a Form 1099 to Subcontractor S LLC (unless there is a contract basis stating otherwise).

  3. I technically worked for a nonprofit that I was the sole employee of. But after failure to pay me our agreed upon wages, I left after two months and started my own sole proprietorship. I am being asked to fill out a w9 as I know is technically how it would work since I was paid over 600, but I do not trust the party with my ssn and do not feel I worked for them because they did not reach the agreement of the contract. Do I still need to provide info? I just want to move on and not be audited…

  4. I’m a sole proprietor. I did work for a GC in 2016 and 2017. I’ve done 8 projects with him in the 2 years and he never asked me for a completed W-9. I received a text message from him on February 11, 2018 asking me for my tin for the 1099. I always include income received from all work I get paid for but shouldn’t he have not only requested a w9 before work commenced and as a payer doesn’t he have a deadline of January 31st to issue it? Can I report him to the IRS?

    • The deadlines to file Form 1099-MISC and furnish a copy to the recipient depends, on part, on what payment is being reported on the form. For the 2017 taxable year, the deadline to file Form 1099-MISC reporting non-employee compensation in box 7 was January 31, 2018. For all other reported payments, the deadline to file Form 1099-MISC is February 28, 2018 (if filed on paper) or April 2, 2018 (if filed electronically). A payer can get an automatic 30-day extension of time to file by filing Form 8809 by the due date of the returns.

      Generally, the deadline to furnish Form 1099-MISC to the recipient is January 31st or, only if payments are being reported in box 8 or 14 thereon, February 15th. A payer can also request an extension of time to furnish statements to recipients by following the instructions provided by the IRS for doing so.

      There is nothing in the Internal Revenue Code or Treasury Regulations that requires a contractor to fill out a Form W-9 or a payer to request a contractor’s TIN before the contractor commences work or before the payer pays the contractor. Rather, the statute requires the payer to issue and file Form 1099 by a certain deadline. So, theoretically, the payer could ask the contractor to fill out Form W-9 after a job is complete or after payment has been made. That said, this is not necessarily the best business practice for a payer to wait to request the Form W-9 because the payer may face hurdles in obtaining the information from the contractor in a timely manner.

      While a payer does have a deadline to file and furnish the Form 1099, the payer’s failure to meet this deadline is on himself, and he may be penalized by the IRS for late filing. The late-filing penalty is likely to be less than penalties for failing to file altogether.

      If you choose to report the payer to the IRS for a suspected failure, and whether the IRS will take action thereon, depends on what is reported and whether the payer actually did anything wrong.

  5. Through revisions to the laws over the years the IRS have made whistleblowers out of virtually everybody. Each time you send someone a 1099 and report it to the IRS you are essentially saying, “Hey IRS! This person made xx amount of money from me. “. This gives the IRS the data necessary to quickly identify when people are not reporting all of their income.
    Sure, tax cheats don’t need to cheat on their taxes, but I also think there is such a thing as government having too much power. Just how much data does the IRS need to collect from everybody? In my opinion their lawmakers need to drastically reduce and limit the amount of data that the IRS can collect and hold on people.
    They say USA is a free country, but I beg to differ when the government is allowed to assign social security numbers to every living person, collect data on them, and track them for their entire life.
    That’s slavery, not freedom.

  6. What is the procedure when the payee is now deceased and there is no estate to provide the information? I paid a subcontractor for work and he died (according to another person who knew him).

    • If the payee had assets that did not automatically transfer upon his death (for instance, property he owned in his name, or a bank account), generally someone who was related will step up to become the personal representative. That person would be responsible for filing a final return. I suggest contacting his family to see if he had a will or to see if whoever took charge of his affairs will provide the information you need. If there is no family member who is willing or there are no estate (no probate proceedings), there is likely a state statute that provides directions on how an interested person (for instance a creditor, a friend, a family member, etc.) can commence estate proceedings and ask to be appointed as a personal representative or have the court appoint someone else.

  7. I hate to put it this way, but I did some work for an entity which was supposed to be cash so they received a substantial discount. Now they are asking for a w9. I have already filed my taxes for this year an this will be a substantial hit. What happens if I deny there request?

    • If the payer’s request for Form W-9 was lawful and you refuse to provide an executed Form W-9, the payer may still file an incomplete Form 1099 with the IRS. If the payer does that, the IRS will likely contact the payer to complete the form. If the payer are unable to do so and informs the IRS of your refusal, you may be exposed to potential liability to the IRS. You may be penalized for failing to provide the Form W-9 to the payer, subject to backup withholding, or face additional exposure, for instance, if the the IRS were to audit you and discover you did not report your income.

    • If you have information at your disposal to obtain some of the information (for instance a legal name or address), you may consider doing so. For instance, if you have a phone number, you could try and perform an online search to see who it belongs to (legal name). If you have an obligation to file and furnish Form 1099, the contractor’s refusal to provide accurate information should not stop you from filing and furnishing the same. That said, if you file an incorrect or incomplete form with the IRS, you can anticipate the IRS will contact you and ask you to correct the form. In order to avoid penalties for filing incomplete and/or inaccurate information, you should show the IRS your attempts to obtain the correct information from the contractor before you filed the Form 1099, and again thereafter.

  8. I have used an independent contractor and paid him about $100,000 for work. He refuses to fill out a W9 and has told me that he wants me not to list these payments as a deduction because he did not report the payments on his tax form. Naturally I refused. Can I file an IRS Whistleblower suit. Is that worth doing. How can I compel him to provide his TIN.

    • Whatever you do, I suggest documenting your efforts to obtain his/her TIN. You can still file a 1099, but be prepared to respond to the IRS if the IRS comes back to you and informs you the 1099 is missing information. This is where the documentation can come in handy. It might be helpful to send the contractor to my blog so he/she can see some of the penalties that he/she may incur for failing to provide his/her TIN.

      • Do you believe that a contractor who has been paid “$100,000 for work” will care about a $50 penalty for failure to furnish a TIN?

        • A contractor’s liability may not be limited to a $50 penalty. For instance, if a contractor refuses to provide the information, he may be subject to 28% backup withholding. If the IRS looks into a refusal, it may also audit the contractor. Even if the contractor is properly reporting all the income received, an audit isn’t likely to be “free”–there is often time and expense involved therein.

    • I was used as an “employee on trial for 3 months” but after two months I was fired. Now my previous “employer” is trying to bully me into providing my social security number to a company and person I have never heard of, what do I do??

      • If you were an employee, the company for which you worked should have had you fill out a Form W-4 when you started working and should have verified your SSN and employment eligibility. If you provided this information to your former employer, your former employer can use this to fill out and issue you a Form W-2. If you were not an employee, and instead were a contractor, you may need to provide the company a Form W-9 so it can issue you a Form 1099. You do not have an obligation to provide your SSN to a third-party, however, and the company has an obligation to keep your information confidential and only use it for proper purposes (although the company if the company uses a payroll processor or hires someone else to file and furnish Form 1099, it may provide your information for these purposes).

        • What if you do not trust the business with your social security number. In my case the business is one person and they have behaved unlawfully in the past…

          • First, I am not aware of any cases where distrust of the person requesting a social security number excuses a refusal to provide the social security number upon the person’s lawful request for the same. If a payor lawfully requests a payee’s social security number (i.e., the request is for proper purposes), and a payee refuses to provide it, the payee could face penalties under the Internal Revenue Code. Accordingly, by refusing to provide your social security number, you risk exposing yourself to liability under the Internal Revenue Code.

            Second, there are several laws that address misuses or unauthorized disclosure of a person’s social security number. If you look at Form W-9, it says the following: “Misuse of TINs. If the requester discloses or uses TINs in violation of federal law, the requester may be subject to civil and criminal penalties.” 42 U.S.C. § 408(a)(8) prescribes penalties for whoever ”discloses, uses, or compels the disclosure of the social security number of any person in violation of the laws of the United States.” Many state laws (in addition to federal laws) restrict the disclosure of SSNs in various circumstances. In addition, there may be grounds for civil liability to you, for instance if a tort were committed. While laws against disclosure and potential criminal and/or civil liability may not deter the person requesting your SSN from disclosing or misusing the same, the person may think twice before doing so.

  9. Hello there, You have done a great job. I’ll certainly digg it and personally recommend to my friends. I am confident they’ll be benefited from this website.

  10. My landlord refuses to sign a W-9 for a charity that will pay half of our rent. She said she doesn’t do W9’s because they’ll have to pay taxes. :( do I wonder if a stern legal letter would convince her to comply.

    • Seriously, there is no requirement to provide a TIN to anyone. The requirement is on the Payor to obtain it, IF POSSIBLE. The IRS cannot unconstitutionally force you to do its tax collection efforts. Jeeze. Why is there so much dis-information about taxes out there?

      • The requirement that a payer obtain a TIN is separate from the obligation for a payee to provide the information. There is no “IF POSSIBLE” language in the Internal Revenue Code or the Treasury Regulations. Please review section 6109(a)(2) and (3) of the Internal Revenue Code and the accompanying Treasury Regulations. To wit, Treas. Reg. § 301.6109-1(b)(1) specifically states that “[a] U.S. person whose number must be included on a document filed by another person must give the taxpayer identifying number so required to the other person on request.”

  11. Great post however I was wanting to know if you could write a litte more on this topic? I’d be very grateful if you could elaborate a little bit more. Many thanks!

  12. Way cool! Some very valid points! I appreciate you penning this article as well as the remaining portion of the website is very good.

  13. Nice post. I learn something new and challenging on sites I stumbleupon every day.
    It’s always useful to read articles from other authors and use something from their websites.

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