Many, if not most, nonprofit organizations will need to issue forms 1099-MISC (“1099”) to its independent contractors or other organizations that are otherwise required to get them. As good as the intentions are, sometimes there’s a problem with the 1099 or the information you’ve used to complete it. Maybe the information in the W-9 you received, which tells you what information you must include on the 1099, isn’t quite right. Maybe you’ve filled out a 1099 in a way that isn’t exactly correct. Or maybe you just made a clerical error and the information you put on the 1099 doesn’t match what the vendor gave you. Whatever the circumstances, when the IRS checks its records and can’t match the name on its copy of the 1099 to the recipient’s employer identification number (“EIN”), the issuer of the 1099 will get what’s called a CP-2100 notice (or CP-2100A for smaller filers). No one likes to receive a numbered form letter from the IRS. Read further to see how to handle it.
How the IRS Determines There Was an Error
The IRS systematically runs a process to check the names and EINs on the forms 1099 it receives against its files of social security numbers, EINs, and other identifying numbers and the associated names. When there’s a mismatch, a CP-2100 notice will go out to the issuer identifying where they’ve found an issue.
There are a number of different reasons that the CP-2100 could be triggered. Among the most common are:
- Not including any taxpayer identification number on the 1099.
- Simple clerical errors such as keying in an EIN into your accounting system that doesn’t match the EIN on the W-9 the supplier provided
- Issuing a 1099 in the name of a business when the business is taxed as a sole proprietorship. In those cases, the 1099 should normally be issued in the name of the sole proprietor even if your checks are written to the business
- A sole proprietor issuing a W-9 with the federal EIN used for employment filing purposes instead if his/her social security number
What to Do After Receiving the Notice
The CP-2100 should come with explicit instructions about what to do, so you should carefully read the notice. At a minimum you’ll need to compare the information provided in the CP-2100 to your records. From there what you do depends on a number of factors. The IRS has published a couple of great flowcharts in publication 1281 that should help you figure out how to proceed, which I’ve replicated here:
While receiving a CP-2100 notice needs to be taken seriously (as does any IRS notice, really), in most cases you’ll be able to avoid having to deal with backup withholding, which is a headache that I promise you’ll want to avoid. If you want to head off issues like the ones presented on the form CP-2100 in the future, the IRS offers a TIN matching program, which, once set up, will allow you to check the information before you even issue a 1099, which should help reduce, if not eliminate, errors completely.