As you are aware, businesses are required to file correct information returns (1099s) to report certain payments to vendors including rents, royalties, interest, non-employee compensation, and other income. This requirement does not apply for payments made to corporations.
To assist the IRS in their enforcement of this filing requirement, business tax returns and schedules require taxpayers to indicate whether payments were made in the course of business that would require you to issue a 1099 and if you did in fact properly issue these forms. These questions are part of your tax return which you sign under penalties of perjury.
Until recently, failure to file a 1099 have been penalized from $60 per recipient if filed within 30 days late to $500 per recipient for intentional failure to file these returns. But under new legislation, Congress has substantially increased the penalty for not filing 1099s for filings after 2015. Under the new legislation, penalties for not filing 1099s have increased to $100 if filed 30 days late and $1,000 per recipient for intentional failure to file these returns.
Considering this substantial increase in non-filing penalties for 1099s, we recommend that you make an extra effort to collect 1099 information during the year. To obtain the required information from your vendors, you should have them complete an IRS Form W-9 before payment.
Please remember that there are also penalties for filing 1099s with missing information.
