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Refusing to Provide TIN

2008-10-13 by

Today TaxMama hears from George in California with this problem. “What course of action can a company take if a payee, who has already been paid for services rendered, avoids or refuses to give his tax ID information (W-9) for 1099 tax reporting purposes?”

Dear George,

This is so common. It’s something I’ve been lecturing about for decades. And it’s totally predictable if you’ve been fool enough to pay them without getting that information from them before handing over the check.

So, first of all, establish a new policy right now. NO ONE gets paid again without filling in the Form W-9 first. Also, get a copy of their business card and any advertising they have for their business (or print out a page of their website and put it into the file).

Now what do you about this particular turkey?

Simple. Send them a written request to provide the information on the W-9. Mail it certified AND e-mail it to them so you have two records of the information proving you tried to get it.

In the letter, request a response within 15-30 days (you decide) and advise your contractor that you will be filing all your 1099-MISC’s in January, as the law requires. Any 1099-MISC sent to IRS without a taxpayer ID number might cause IRS to investigate the payee, and may even result in an audit of the payee. Make it clear that you will not be asking again. And make it clear they will not be doing any more work for your company without this information.

That usually gets a response. Unfortunately, sometimes, it can be a violent response. So be very careful and tactful. But firm. You can’t believe some of the frightening, irrational behaviors I’ve witnessed from people who never planned to pay taxes on the income my clients have paid them. You’re going to see some real desperation because they no longer have the money to pay these ‘unexpected’ taxes.

This is another reason to make it clear at the outset that you need their ID numbers. They can price the work accordingly, taking into account the cost of paying tax on the income. And no one gets any surprises.

Oh, what’s if they still don’t provide the information? Do what you said you would. File the 1099-MISC without the ID number and in the space for the number, if your software will let you – enter “refused to provide”. If it won’t, include a cover sheet with a list of taxpayers who refused to provide their ID numbers.

And remember, you can find answers to all kinds of questions about recalcitrant payees and other tax issues, free. Where? Where else? At TaxMama.com

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  1. George Navarro Says:

    Tax Mama,

    In regards to George from California's quandary, it's been my experience that the IRS may deny the deduction. One comment has been that the payee may not have a valid social social security number therefore, the expense is not considered valid and thus disallowed.
    They've even indicated that they would like to see an I-9 filled even though the form relates to employees.

  2. Floyd Greenman, EA Says:

    I had a problem with a square dance caller who 3 times failed to provide his SSN. Luckily, he had not yet been paid. I took along 2 checks. One for the full amount and another with 30% withheld for taxes. I asked him again for his SSN and showed him the different checks. He decided to give us his SSN.

  3. Heather Says:

    Eva, I agree with your comments and the response regarding the IRS handling of 1099-M deduction for the company without the proper TIN/SSN. George should contact the California Franchise Tax Board – Filing Enforcement Department. George should let the FTB know that he has/had an employee/contractor who will not/did not provide his SSN for reporting purposes. The FTB should be able to tell George how he should complete his return. Personally, I would not claim the deduction, it is a law at least in California that before you pay someone they must fill out an I-9 providing their SSN or tax ID# and provide proof of citizenship documentation prior to you hiring them. George could be fined for not requesting and having on file the form and documentation. The FTB would be happy to work with him. He could also contact the Advocates office if he is not getting assistance from the toll free number folks.
    You can reach the California FTB Taxpayers Advocate here: http://www.ftb.ca.gov/aboutftb/taxpayer_advocate/index.shtml or 800-883-5910.

  4. Thomas Avery Blair, EA Says:

    I deal with this problem all the time. Once I have warned a client to not pay anyone as a subcontractor without a W-9 first being completed, thereafter if they "forget" then I simply tell them we are not claiming the deduction for those funds and the money they paid is more or less a gift (hopefully it isn't over $12K). I have fired 21 of my clients this year over this issue; who needs a client that won't take good advice? The rest know I mean it and either they must do it my way or hit the highway with my blessings. Do it any other way and you get more than grief from IRS, you also get hassled by the state wage and hour people, the state unemployment people, the clients' workmen's compensation insurance agency and only God knows who else. No client is worth the hassle once they have been warned and ignored or forgot your warning…and when I do fire a client they can never, ever, come back…period. Mean? Maybe, but my practice is growing and my clients know I am a hard**s in this matter—-very few risk it once they are told not to do it. Feel sorry for them? Nope…it is a cost of doing business incorrectly…period. I suspect I am in a minority opinion here…but I have better things to do with my time and efforts that coddle someone that will not take good advice and act upon it properly. Respectfully submitted, Thomas Avery Blair, EA

  5. Kristine Hix, EA Says:

    Also, when all else fails, you promise to withhold the 28% backup withholding on the payments. That brings in the w-9 as well. If that looks like it's not right, I still do the withholding until they prove the number. We also need to get certificates of insurance, and then I can call to verify a tax id with the insurance company if need be.

  6. Chris Says:

    Thanks for the post. I am running in to both this issue as well as the owner paying people who work for him with 1099’s when they should be employees! I’m doing some research in to this…what fun! ;-)

  7. Marty Says:

    The biggest mistake you can make is contacting the IRS about a contractor who has failed to provide executed 1099. The service will deny the deduction and impose a 28% backup witholding tax. IRS wants their money and the easiests person to get it from is the taxpayer. Don’t send in unsigned 1099’s


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