Requirements for Furnishing Form 1099-G Electronically
Valerie: Welcome, and thank you for joining the Internal Revenue Service's phone forum on the requirements for furnishing Form 1099-G electronically. My name is Valerie Hardeman. I'm the Field Manager of the Central Area Group of the Federal, State and Local Government Division of the Internal Revenue Service, or FSLG. With us today for this discussion are Phyllis Burnside, Compliance Program Manager, FSLG, Providence, Rhode Island; Lori Stieber, Tax Specialist, Midwest Area Group, FSLG, Minneapolis, Minnesota; Rick Reuscher, Tax Specialist, Central Area Group, FSLG, Mount Vernon, Illinois; Mike Hara and Blaise Dusenberry, Office of Associate Chief Counsel, Washington, DC.
You have been invited to this call because many of you have either elected the option of furnishing 1099-Gs electronically or have future plans to do so. The office that has oversight for 1099-G filling for government entities is our TE/GE office of Federal, State and Local Government Entities. FSLG would like to take this time to share with you how to successfully implement furnishing 1099-Gs electronically, discuss the requirements, and to answer questions you may have about the process. This session will be recorded for later access at a later date. We will create an accessible link through the FSLG web page so our customers may learn how to retrieve and listen to this and other archived educational recordings. I'll now turn it over to Phyllis Burnside, Compliance Program Manager for FSLG.
Phyllis: Thank you, Valerie. I know we are all busy, so I would also like to take this opportunity to thank you for taking the time to attend this call today. We all know that our income tax system relies on self-reporting of income, and that most Americans depend on receiving and including income reported on various information returns. The likelihood of income being reported properly is greatly reduced when information returns are not prepared correctly and delivered to payees. The IRS has focused for many years on e-filing, but e-furnishing is becoming more and more prevalent and deserves more attention. So our goal today is to provide you all the information, tools and resources to help you implement an e-furnishing system for these returns that complies with the rules and regulations.
FSLG published a web article on this topic, and you can find it by going to www.irs.gov and searching "requirements for furnishing Form 1099-G electronically". You may want to refer to the article later to review the information provided today. It contains many resource links, but the most important one we will be discussing today, which will be mentioned throughout this call, is Pub 1179, General Rules and Specifications for Substitute Forms 1096, 1098, 1099, 5498, W-2G, and 1042-S. Your best resource for developing a system to electronically furnish information returns is found in Section 4.6, Electronic Delivery of Recipient Statements on pages 30, 31 and 32 of the pub. As is true with all IRS forms and publications, the Pub 1179 can be accessed by going to www.irs.gov and selecting 'Forms and Pubs' on the left-hand side. You can view forms and publications online, download a PDF, or order hard copies via this page.
To begin, let's talk briefly about the Form 1099-G, which is an information return that is used by federal, state and local government entities to report certain payments. You're required to file and furnish Form 1099-G if you made the following types of payments: unemployment compensation; state or local income tax refunds, credits or offsets; ATAA and/or RTAA payments; taxable grants; agricultural payments; and you must also file this form if you received payments on a commodity credit corporation or CCC loan. More details on the types of payments reportable can be found in the instructions for Form 1099-G, also available via www.irs.gov. In general the furnishing requirement is met by providing the recipient or payee with a paper copy of Form 1099-G by January 31 of the year following the year of payment. You must also file a copy of the 1099-G with the IRS before February 28, unless you file electronically, which allows for a due date of April 1 of the same year. The Internal Revenue Code and regulations allow for most information returns to be furnished electronically. A complete list of allowable returns is found on pages 30 and 31 of the Pub 1179, again under Section 4.6, Electronic Delivery of Recipient Statements. The most common returns used by FSLG entities are the Form 1099-G for certain government payments; Form 1099-INT for interest income; Form 1099-MIS, miscellaneous income; the Form 1099-R, distributions from pensions, annuities, retirement or profit sharing plans, IRAs, insurance contracts, etc. – I know that's a long title; Form 1098-E for student loan interest statements; Form 1098-T for tuition statements; and lastly, Form W-2G, for certain gambling winnings.
Why migrate to furnishing Form 1099-G electronically? There are quite a few advantages to it. Your entity may recognize significant cost benefits that result when paper and printing costs are reduced, mailing processes and fees are reduced if not eliminated, paper handling costs from filing, sorting, storing and shredding are reduced; eliminating re-typing and/or editing of documents reduces costs; and finally, accessibility is a factor. Distribution via secure web access and email is usually most cost-effective and convenient.
Once your organization commits to electronically furnished 1099-G, how must it be done? We would like to take this opportunity to review the requirements for setting up a system for furnishing 1099-G electronically. In general, the entity will request affirmative consent, receive and document the consent, provide required notifications, and furnish statements to consenting payees electronically.
Now let's go into a little more detail. Section 401 of the Jobs Creation and Worker Assistance Act of 2002 established that, in order to use electronic deliveries and information returns to payees, the payer must obtain an affirmative consent from each recipient to whom a statement will be furnished electronically. The consent must be made by the recipient electronically in a way that confirms that the recipient can access the statement in the same electronic format in which it will be furnished. For example, if the Form 1099-G will be delivered as a portable document format, or PDF file, then the affirmative consent document format should also be in PDF. In addition, the payer must make certain notifications to each consenting individual. These will be addressed later in the presentation.
Now let me turn this over to Lori Stieber, who will talk about the consent process.
Lori: Thank you, Phyllis. The first step in the process is to obtain consent from your payees. The procedures that follow were originally included in Revenue Procedure 2004-58 and have been annually updated without material change through and including the current Revenue Procedure 2011-60. You may refer to the affirmative consent procedures after this call at pages 30, 31 and 32 of Publication 1179, under Section 4.6, Electronic Delivery of Recipient Statements. The process begins with correspondence sent to each individual payee, requesting affirmative consent to electronic delivery of their Form 1099-G. The correspondence may be delivered by mail, electronic mail, in person, or via web site posting, and it must provide instructions on how to affirmatively consent. The correspondence must include the following statement in capital letters: "IMPORTANT TAX RETURN DOCUMENT AVAILABLE." If the correspondence is provided by electronic mail, the foregoing statement must be on the subject line of the electronic mail. If the notice, the electronic notice, is returned as undeliverable and the correct electronic address cannot be obtained from the payee's records, or from the payee, then the furnisher must furnish the notice by mail, or in person, within 30 days after the electronic notice is returned.
Now the following examples for securing consent are found in Regulation 31.6051-1. These examples apply to any electronically furnished information return. Example one: consent is requested via correspondence. The state sends the recipient a letter, stating that the recipient may consent to receive the form electronically on a web site, instead of in a paper format. The letter contains instructions explaining how to consent to receive the form electronically, by accessing the web site, downloading the consent document, completing the consent document, and emailing the completed consent back to the state. The consent document posted on the web site uses the same electronic format that the state will use for the electronically furnished form. The recipient reads the instructions and submits the consent in the manner provided in the instructions. The recipient has consented to receive the statements electronically in the manner described in the regulations.
Example two: consent is requested via e-mail. The state sends the recipient an e-mail, stating that the recipient may consent to receive the form electronically instead of in a paper format. The email contains an attachment, instructing the recipient how to consent to receive the form electronically. The e-mail attachment uses the same electronic format that the state will use for the electronically furnished form. The recipient opens the attachment, reads the instructions, and submits the consent in the manner provided in the instructions. The recipient has consented to receive the form electronically in the manner described in the regulations.
Example three: consent is requested via a web site posting. The state posts a notice on its web site, stating that the recipient may receive the form electronically instead of in a paper format. The web site contains instructions on how the recipient may access a secure web page and consent to receive the statements electronically. By accessing the secure web page and giving consent, the recipient has consented to receive the form electronically in the manner described in the regulations.
So in each case, the payer took the necessary steps to notify recipients by letter, email or web site posting about the availability of a consent election, prior to issuing returns electronically. Electronic statements were furnished to an individual only after that individual responded with an affirmative consent. If the payee does not consent, a paper document must be sent. As part of the consent process, the government entity must provide the recipient a statement with all the following notifications prominently displayed. There are eight notifications.
The first is, if the payee does not consent, a paper copy will be provided. Two, the consent is voluntary, and may be withdrawn later by the payee. Three, the scope and duration of the consent. Four, how to obtain a paper copy, after giving consent. Five, how to withdraw the consent. Six, conditions under which an electronic statement will no longer be furnished. Seven, procedures to update payee information. And eight, a description of hardware and software required to access, print and retain a statement, and when it will no longer be available. If the government entity makes any hardware or software changes that create a risk that the recipient will not be able to access the statement, a notice of these changes must be provided to the recipient before changing the hardware or software. The notice must inform the recipient that a new consent to receive the form in the revised electronic format must be provided. After implementing the revised hardware and software changes, the furnisher must obtain from the recipient a new consent or confirmation of consent to receive the form electronically.
Remember that you can refer to the affirmative consent procedures after this call at pages 30, 31 and 32 of Publication 1179, under Section 4.6, Electronic Delivery of Recipient Statements. Now, Ric Reuscher will talk about what you need to do after you have secured consent.
Ric: Okay, thanks, Lori. All right, like she said, now you have the consent, what's next? Well, the government entity must place electronically posted Forms 1099-G on the applicable web site by January 31, the due date, and the statement must remain available until at least October 15 of that year. When Forms 1099-G are posted, the issuing entity must notify the consenting payees, either electronically or by mail. For payees who do not provide consent, or who withdraw their consent to receive the Form 1099-G electronically before the statement is furnished, the payer must provide a paper payee statement within the regular deadline. And again, that would be January 31 for the Form 1099-G. As a payer, you should have a record of the payee consent for every statement that you furnish electronically. If you fail to furnish the information in the required manner, this could result in the payee neglecting to report the income on their individual federal, state or local income tax returns. And this could subject them to enforcement actions, including penalties and possibly interest, by multiple government taxing authorities on any taxes that were due and owing. The affirmative consent requirement ensures that each payee will either receive the statement on paper, or agrees to the electronic delivery.
Now here are a few reminders. One, the recipient must not have withdrawn the consent before the statement is furnished. Two, if the recipient subsequently withdraws his or her consent, your system must notify you and a paper reporting requirement must be resumed. You must provide a paper payee statement within the regular deadline, and again that of course is January 31 for Form 1099-Gs. Three, remember, a new consent to receive the statement electronically is required after any new hardware or new software is put into service. And four, all electronic statements must be in a format that conforms to the requirements as stated in Publication 1179.
So in summary, the affirmative consent requirements assure that a payee knows the information statement will be furnished electronically, that they have the right hardware and the right software to receive the information statement, and that if they do not consent, a paper statement will be provided to them.
Now this concludes our prepared presentation, and I hope you found it informative. When you received the information to this phone forum, you had an opportunity to submit questions. We will now turn the presentation over to Mike Hara, who is an attorney in the Office of Associate Chief Counsel, Procedure and Administration, who will answer some of those questions that were sent to our Ask FSLG in-box. We cannot address individual account situations, or other questions, but we can advise you on who and how to contact for more information. Any remaining questions at the conclusion of this call can be sent to the following web address: tege.ask.fslg@IRS.gov. Again that's email@example.com. Okay, Mike.
Mike: Hello, everyone. We have received a few questions prior to this call via the "Ask FSLG" e-mail in-box. The first question is, does the consent have to be secured for each tax year, or does it stay in effect until the taxpayer-payee withdraws the consent. The answer is, the furnisher, in this case the state, can make the determination regarding the scope and duration of the consent as long as the payee is informed. Thus, each state can decide whether a consent to receive payee statements electronically lasts for each succeeding information return, unless it is withdrawn or there is a change in hardware or software requirements, or whether the consent is only effective for the first information return required to be furnished following the date the consent is given.
The second question is whether the furnisher, in this case the state, has met its obligation to furnish the information return if the payee has affirmatively consented to receive the information return electronically but does not actually retrieve the information return. The answer is that the state has met its obligation to furnish the information return under Internal Revenue Code Sections 6050B(b), and 6050E(b), if the payee affirmatively consents to receive it electronically, regardless of whether the payee actually retrieves the information return. Section 401 of the Job Creation and Workers' Assistance Act of 2002 permits the electronic furnishing of all statements required under Section 6041 through 6050W, if the recipient consents to receive the statement in a manner similar to the one permitted by regulations under Section 6051, or in such other manner as provided by the Secretary.
The next question is: Does the furnisher, in this case the state, have to obtain affirmative consent to furnish the Form 1099-G electronically. The answer is, under federal legislation, IRS regulations and form instructions, the furnisher must obtain affirmative consent before they may furnish the Form 1099-G electronically. If a furnisher does not obtain affirmative consent, they must furnish the return by paper, or they will be in violation of the Internal Revenue Code, IRS regulations and form instructions.
The next question is: Why should the state comply with the affirmative consent requirement? The answer is, the affirmative consent requirement assures that the payee knows that the information return or statement will be furnished electronically, and has the right hardware and software to receive the information statement. If the payee does not know that the statement is furnished electronically, or does not have the right hardware and software to receive it electronically, he or she may not report income when required. This would result in loss of revenue for the state and increased correspondence and compliance costs. Moreover, and this is not to say that the Internal Revenue Service is considering doing this, the legislative history to the Tax Reform Act of 1984 states, the conferees anticipate the Secretary would seriously consider terminating any exchange of returns or return information under Section 6103 with the state that does not report refunds to the taxpayer. This statement was in the House-Senate Conference Report, HR report number 861, at page 992, dated June 23, 1984.
The next question is: How does the IRS interpret the phrase 'must provide a Form 1099-G'? The answer is the furnisher must either give the payee a paper copy of the Form 1099-G, or furnish the Form 1099-G electronically by email or on a secure web site, if it has obtained affirmative consent by the payee.
The next question is: Would it be acceptable by the IRS to stop the mailing of Form 1099-G and furnish the form to taxpayers only electronically and by telephone. The answer is, the furnisher, in this case the state, may furnish the information return electronically if the payee has affirmatively consented to receive the information return electronically. Under current regulations, this means furnishing either by email or on a secure web site. And it does not include furnishing orally on a telephone.
And the last question is: What is a Form 4419 and who needs to file it? The answer is, a Form 4419, Application for Filing Information Returns Electronically, is submitted by those payers or agents who desire or are required to file information returns with the IRS electronically. Please review the instructions to Form 4419 for information on how to fill out and submit Form 4419 to the IRS. And that appears to be the extent of our questions for today, so let's turn this back over to Valerie to wrap up our session.
Valerie: Thanks, Mike. The IRS Office of Federal, State and Local Governments, FSLG, invites you to register for a free video webinar on Thursday, September 20 at two o'clock p.m. Eastern time. The topic will be 'Avoiding Information Reporting Problems for Government Entities.' This free webinar will discuss the following items: what payments should be reported on Form 1099-G; how to obtain correct taxpayer identification numbers; common mistakes in filing information returns and how to avoid them; when do you need to impose backup withholding; penalties for failure to file correct information returns; the IRS online taxpayer identification number matching system; general information on filing information returns electronically.
The IRS has recorded and posted several webinars on employment tax topics, such as the implications of a Section 218 agreement, and the treatment of employee versus independent contractors. You can find these webinars on our video portal at www.tax.gov, www.tax.gov. The webinars conducted by FSLG will be located under the "Government Entities" tab. Again, the video portal web site is www.tax.gov.
You can find publications, forms and many other great resources on IRS.gov. For those that are familiar with our web site, upon your next visit, you will notice a new layout, as it was recently redesigned. You can easily navigate to the 'Government' section one of two ways. You can get there directly by navigating to www.irs.gov/governments-entities - and I'll repeat that, because this is new, www.irs.gov/governments-entities. Or by navigating to www.irs.gov and clicking on the arrow in the upper right corner, next to the words 'Information For' and selecting "Government Entities".
On behalf of the Federal, State and Local Governments Division of the Internal Revenue Service, Phyllis, Lori, Rick, Mike, Blaise and myself would like to thank you for attending today's session. We hope this session has helped clarify some of the issues you've faced or will face when you have elected the option of furnishing 1099-Gs electronically. These include requesting affirmative consents, receiving and documenting consents, providing required notifications, and furnishing statements to consenting payees electronically.
Again, if you desire more information, we encourage you to visit www.irs.gov. Thank you and we hope you have a successful day.
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