Episode 36: New Online EIN Verification and Second B Notices — Can You Use It?

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Welcome to this week's Information Return Intelligence powered by IOFM. My name is Jason Dinison. This week we're going to talk about CP twenty one hundred letters and in particular second B notices and this new thing that the IRS has rolled out where businesses can get verification of their employer identification number by simply logging into their business tax account online. I did it myself, it takes all of like maybe 30 seconds to get one of these EIN verifications. The question is, will this count for second B notice EIN verification? We will discuss that today on information return intelligence powered by IOFM. Let's get started by giving some background information on what we're even talking about here. So the IRS has added the ability for a business to get verification of its employer identification number through the business's online account if the business has one. And so our mission today is to figure out with second B notices, can you accept this verification letter? And the short answer is no. I think the answer is no. We will dive into it today. So to help understand this issue, we have to understand B notices and CP twenty one hundred letters. When you file a 1099 with the IRS, it goes into the IRS's computers. And if the IRS computers can't match up a name and taxpayer identification number combination with your 1099, then they send to you a letter called a CP2100 letter. And the CP2100 letter says you filed a 1099 where these are all the people or businesses that you issued a 1099 to that don't match in our system as far as the name and taxpayer identification number combination. It doesn't match. So your job when you get a CP2100 letter is to send what's called a B notice to whoever you sent the 1099 to. So the B notice tells your contractor or whoever the issue is with, whatever type of 1099 you issued them. It says the IRS has notified us that there was a mismatch between what we put on the 1099 versus what's in their system. And the party that receives the B notice, such as your contractor, has to provide corrected information to you. On a future episode, we'll talk more about CP2100 letters and B notices. This is kind of a slow time of year for that, because the IRS sends CP2100 letters out in the spring and fall. The official documentation from the IRS says April and October. The last several years, though, in practice, that fall wave has come in like mid to late September. So we're two months away, maybe more, from really needing to act on this. Now, like I said, that's all we're gonna say today, but that's the basic overview. So you have what's called a first B notice and a second B notice that you send out. And we're not gonna get into all the specifics of what you send to whom, but just know this with a second B notice, you have to receive proof of the person's taxpayer identification number. If it's a social security number, you have to get proof of their social security number in the form of a copy of the Social Security card. If it's an EIN, there is a letter called a 147C that they have to give you that is a letter from the IRS certifying the EIN that's on file with the IRS. And that's where today's episode and this new online EIN verification letter comes into play. You're supposed to get a letter 147C to verify their EIN. Does this new online verification thing that people can get in their account satisfy that? The B notice process lays out a specific procedure for getting a 147C. The payee, that means your contractor, whoever it is that needs to prove their EIN, they have to request in writing to the IRS that they want a 147C. And the IRS will then mail them, snail mail them, the letter, and they provide the letter to you once they receive it in the mail. Now when the IRS came out with this on July second, their news release said that this online notification that you can download from your business tax account, that's an online account that a business can set up, can be used instead of a letter 147C. It says that right in the news release. Now it's pretty clear to me that this news release, which was included in an IRS newsletter, seems to really be geared more toward needing to prove your EIN when you go to open a bank account or something like that. It even talks about it, that this is a digital notice that can be taken to a bank or financial institution for verification purposes. So there's nothing in this news release that says whether it can apply in second B notice situations. So that's really what the question is is for those of you who deal with CP2100 letters and B notices, can you actually use this online verification that someone might provide you in place of a letter 147C? We will dive into that next, but first a word from our sponsor, IOFM. If you're a financial operations professional, IOFM is the place for you. IOFM's membership website, IOFM.com, features industry research and best practices, metrics and benchmarking data, policies, case studies, tools, templates, and critical compliance and corporate governance resources. The institute also produces on-demand e-learning resources, including video trainings and web-based seminars, and they host industry-leading conferences in the spring and fall. Learn more at IOFM.com. And now back to the show. So we're working through can you use this new download EIN verification that people can get off of their business online account? Can you use that for a second B notice? And I believe that the answer is no. Let's examine publication 1281, which is the source of all things related to CP2100 letters and B notices, says for EINs it has to be a letter 147C. It even specifies the process, and this is laid out in the B notice that the contractor gets. That the process is to write to the IRS and ask them to send you a letter 147C. And as part of that process, you have to include a copy of the second B notice and give it to the IRS. And then they will mail you back a 147C. That's the process. And then the contractor or whoever it is that needs to prove their EIN gives that to you as the one who issued the 1099 and received the CP2100 letter. And that letter 147C is then your documentation that you did your due diligence to verify the EIN. Now, when people go online to their business account and they download this EIN verification, what they receive is not a 147C, it's a different notice called a CP575. And that I think is really the crux of the problem here when we're talking about can you use this for B notice situations? Because it's not just publication 1281 that says 147C. The regulations are silent on how you verify an EIN. The regulation just say you have to do it based on specifications of the Treasury Department in published guidance. So there's a couple of places where we can turn to find that published guidance. One is what's called cumulative bulletin notice ninety-one-forty, which lays out certain things relating to second B notice situations that would have been new at the time in the early nineties. And one of those was that there was a period of time between September 15th, 1991 and September 2nd, 1992, when payers could accept proof of an EIN in some other manner than a 147C. But this notice specifically says after this period, only letter 147C will be acceptable. Then we turn to revenue procedure 93-37, which says that if you are showing that you did what you were supposed to do under the regulations relating to second B notices, you have to get a letter 147C from the other party. That's how you validate the name and EIN of the other party for B notice purposes, is a letter 147C. And then the internal revenue manual in the spot that talks about backup withholding, which is related to all of this. So in the backup withholding section of the internal revenue manual, it's also B notices, it also specifies there 147C in four different places. So I think that there are two things that are true at this point. Number one, I would be very hesitant to rely on this downloaded verification thing from a person's business online account. Because I now this is my opinion, but I don't think you can use that because it is not a letter 147C, and everything that's out there in the B notice world says 147C is the only thing. Now the IRS does say in that news release where they say, hey, now you can get online verification of your EIN, they do say you can use this in place of a 147C. I would not rely on the words of that news release because it seems to me, now this again is my opinion, but it seems pretty clear to me that this was referring to things like going and opening a bank account or something like that, not to be notice situations. Because all of these things that have always been true about B notices have not been changed. And so I'd be very hesitant to rely on some little blurb in a weekly newsletter from the IRS on this. That's one thing that's true. The second thing that's true is we're not in B notice season right now. The IRS sends CP2100 letters out in the spring and fall. And it'll be mid-September at the earliest before they send the next wave out. So we have two plus months to get guidance from the IRS and to just ponder this some more. And that's really the best course of action, I think, is to just watch and wait. And if September comes and we don't have anything specific from the IRS and they haven't updated publication 1281, and the CP2100 letter is silent about it, I think that we will figure out what to do at that point. Remember that this is only going to be an issue for you if it's a second B notice where you need proof of the other party's EIN, and furthermore, they go to the internet and log into their IRS account and download this verification from their account, and then they give it to you and they say, Here you go, that's when this would be an issue. Thanks for listening to or watching this week's episode of Information Return Intelligence. We do this every week talking about different 1099 related issues, the W9, the 1042S, or as today's episode, B notices, CP2100 letters. Like and subscribe. What you need to do for that'll vary depending on what platform you're listening to or watching this on, but whatever it is that you need to do to like and subscribe, please do that and share this with your colleagues. You can find all of our episodes online at podcasts.dynasonmedia.com. My name is Jason Dinason. Information Return Intelligence is powered every week by IOFM, and we will talk to you again next week. Dynason Media Ventures.