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Ed Generes
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IRS PENALTIES FOR INCORRECT 1099-S FORMS

THE 2 YEAR TIME BOMB YOU DON'T KNOW ABOUT......YET!

The IRS may be coming for you for mistakes you made 2 years ago and the penalties for those mistakes can cost you thousands of dollars.

Filing forms 1099-S with Internal Revenue Service is a routine and accepted part of a settlement agent's responsibilities. The process is fairly simple: gather the seller's name and social security number or employer identification number, enter the sales price of the property and a brief property description and send it in, right? Wrong.

It's quite a bit more complicated than that. In addition to the sales price of the property, which is easy to get correct because it's in the contract and on the settlement statement both of which are signed by all parties, the settlement agent needs to be certain to collect the following information in order to provide correct 1099-S information to IRS:

1. The name of the person, corporation, LLC, estate, trust, etc. receiving the proceeds from the sale of the real estate;

2. The taxpayer identification number (TIN) which is the social security number (SSN) for a natural person and employer identification number (EIN) for non-natural persons or entities which number MATCHES the NAME of the SELLER in the records of Internal Revenue Service or Social Security Administration.

3. The correct mailing address for the seller. In the case of a sale of a personal residence, the seller's mailing address will normally not be the property address.

In 2018, many settlement agents were fined several thousands of dollars for failing to report correct information on Forms 1099-S.... for 2016! It is expected that IRS will cast a wider net in 2019 and beyond. 

Incorrect includes, among other things:

1. the name of the seller does not match the TIN provided;

2. the TIN Type (SSN or EIN) was incorrectly identified on the electronic file.

As of March 27, 2019 (for 2018 transactions), our company has performed TIN matches on thousands of pairs of TIN/NAMES via the IRS. The mismatch rate in our work approaches 10%. Converted to dollars, a mismatch of 10% equals a potential fine of $26,000.00 for each 1,000 1099-S forms filed. And, as a kicker, you may not know about it for about 2 years!

How do mismatches happen? Mostly by human error such as:

1. The TIN was mis-keyed into your system;

2. The TIN for an LLC was entered as an SSN instead of an EIN;

3. The seller is an estate or trust and the SSN for the trustee or the executor was entered instead of the EIN for the estate or trust;

4. And on and on .........

Of course, a seller may have just lied to you and gave you the wrong number.

What do you do now? If you've already filed your 1099-S forms for 2018, you should consider getting someone to do a TIN match on your files and file amended returns with IRS. Or, if you haven't filed yet for 2018 and you are concerned that you might have a problem, file for an automatic extension and then contact us to arrange for a TIN matching on your 2018 files. Go to https://fire.irs.gov/ to file for an extension. You'll need to create an account if you don't already have one but that's easy to do.

For more information on TIN Matching or to get answers to your questions, please email me at ed@generes.biz

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