Episode 48: 3rd Quarter 2026 Roundup

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Welcome to this week's episode of Information Return Intelligence. My name is Jason Dinison. This podcast is sponsored by IOFM, the Institute of Finance and Management. This week's subject is third quarter news roundup of things that happen in the 1099 world for the third quarter, so July, August, September of 2026. Before we get started, quickly our disclaimers, don't make any final decisions based on things that you see or hear in this podcast. I am not your accountant, and you should always pay for professional advice before making final decisions. So this is our quarterly roundup of things in the 1099 world that happened in the past quarter. And we will have a link in the show notes to a blog post that has much more information about all of these subjects. It was a busy quarter, so we have a lot of ground to cover in this podcast. And I don't like going on and on and on and on and on. And so I will summarize in the podcast and then you can go to the blog post and read more if you want to. The IRS in August announced that the fire system is ending. We know the date now and not just the date but the time. three PM Eastern time on november nineteenth. And after that, IRIS will be the only system. The IRS also has announced an online public meeting to discuss the transition from fire to iris. They have one coming up on October twenty eighth. And the problem is that that event is full. When you click on the link that the IRS provides, it says event is full and it's not taking any further registrations. So I would say keep checking that. We'll of course bring it up at Information Return Intelligence if they do offer more sessions or at least if they replay that session. The related episode on the shutdown of the fire system is episode 43. The end of the third quarter brought us into CP twenty one hundred letter season. CP twenty one hundred letters are important for compliance and avoiding backup withholding, so if you get a CP twenty one hundred letter, it's important to take them seriously and take action when you get one. And that action oftentimes is sending what's called a B notice. In a related note to that, in July the IRS announced that it had enhanced business tax accounts, online business tax accounts, to allow businesses to download an EIN verification letter that the IRS says in its news release can be used in place of a letter 147C. Now the IRS also talks about how you can use this at banks and other financial institutions. The big deal with that is that letter 147C is an important compliance letter as part of the second B notice process if you're trying to get verification of an EIN. And I don't think you can accept this downloaded EIN verification from the internet because all published guidance relating to B notices says you must get a letter 147C. Our related episodes on these subjects are episode thirty six for a discussion of letter one hundred forty seven C and episode forty six for a discussion of CP twenty one hundred letters in general. Just a quick note on the W nine. The draft of the W nine that's been out there for over a year is still just a draft. Keep using the one that says March twenty twenty four on it because that's the official one. I check multiple times a day every day. I'll let you behind the curtain here that I'm recording this on october sixth and it's dropping on october sixth, this episode is, and I just checked right before I started recording, and it still hasn't released as of october sixth. It's almost getting to a point where we'll stop talking about this draft of the W nine because it's been out there for so long with no movement on it. I still think personally, well professionally, that this new W nine will be released for real before the end of the year. But it hasn't been released yet, so keep using the one that says March twenty twenty four on it. The Treasury Department in July released its annual update to the rules for substitute forms. And we all need to at least be aware of the existence of these rules. It has to do with required layouts on whatever you're submitting to the IRS or providing like the copies that you provide to the other party. And this revenue procedure gets into very specific things with like margins and things like that that we don't really get into. We're certainly not getting into it today. We didn't get into it in our episode a while back where we talked about this annual guidance that was released, but it is a part of this guidance. It just means that like you can't just write on a piece of paper and hand it to someone. It has to meet certain specifications in order for it to count as an official form, whether you're filing it with the IRS or providing it to the other party. We have four new forms that are listed in this guidance. 1098 VLI. If you are a lender who makes auto loans, you might have to issue a 1098 VLI. Form 1099 LPS relating to long-term care insurance premiums paid. Form 5498 TA relating to Trump account contributions, and the 1099 DA relating to digital assets. That was new in 2025, but the IRS continues to list it in this latest guidance as a new form. And then one form has been removed from the list, 1098 MA, which relates to certain government housing programs where funding has expired and the programs have ended, and so this form is being removed. Before we go further, let's hear 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. The instructions to the 1099 NEC and ten ninety nine miscellaneous were released in July. Nothing too groundbreaking that we haven't covered before. A few things under what's new, the IRS points out that the address fields have been broken into separate fields. So in prior years the address box was just one big box that you put everything in, and now city, state, and zip all have separate boxes. I don't know if that's cosmetic or if that actually has some implications, such as within Iris. I'm still digging on that. That revenue procedure on substitute forms layouts, by the way, didn't tell us anything about that other than that revenue procedure mentions that this is happening on various 1099s, but it didn't go any further as far as what it means. Also under what's new, the IRS continues to list the e-file threshold. Now this changed in 2023, but the IRS keeps listing it under what's new. This is referring to the fact that filers have to e-file if the total number of information returns that they're filing is 10 or more. And the IRS also lists the new boxes for reporting of certain overtime and tips under what's new. That's a nice segue to the IRS releasing new frequently asked questions on the overtime deduction. So in August, these FAQs came out and there was one FAQ that talks about when would you report overtime on a 1099? And it's something that we've talked about here before, and that is that if you have a worker who is an employee under Department of Labor tests, but a contractor under IRS tests, that's when you might be paying overtime under FLSA that would be reported on a 1099. There are several episodes that we've done about all of these things. We talked about substitute forms in episode 42. We talked about those IRS FAQs on overtime in episode 40. And you have to go back to episode 33, where we talked about the 1099 NEC and 1099 miscellaneous changes for 2026. In August, the Treasury Department released final regulations on Form 1099 K backup withholding thresholds. And these regulations simply align Form 1099 K backup withholding to the revised reporting thresholds for third party settlement organizations. And that's all we're going to say in this podcast. We have covered the 1099 K in several episodes this year. Most recently it was episode forty-four. That was part of a three part series on the 1099 K. We'll have links in the show notes. I wanted to just quickly mention that in July the IRS announced a change to its longstanding first time penalty abatement program. First time penalty abatement is something that was available for many late filing penalties of filers who haven't incurred penalties in the last three years. But what it required was that they file late and the IRS assess a penalty and then the taxpayer specifically requests a first-time penalty abatement and the penalty goes away. Now the IRS is phasing in a new program where it'll automatically apply the penalty abatement amount without the taxpayer needing to actually apply for it. This will be of limited use to most of us in this audience because it does not apply to 1099s or the 1042s. But it could apply to things like Form 945 or Form 1042, the summary forms reporting backup withholding. There is a tax court case in July called Eiler vs. Commissioner, which gives us a good reminder about how attorney fees are treated in legal settlements. So if a settlement is taxable to the recipient, then the whole amount is taxable, even if much of the settlement goes to their attorney. And we talked about this case in episode 39, and we're not going to rehash everything about it here today, but in the Eyler case there is this couple with the last name of Eiler who received a settlement of $64,750. But they only really received $4,700. Their attorneys got all the rest over $60,000 went to their attorneys. And there is a dispute between the Eilers and the IRS on what the proper amount was. Is it the $4,700 or is it the $64,750? And it went to the tax court, and the tax court determined that the proper amount was sixty four thousand seven hundred fifty. In August, the IRS reminded certain foreign filers of 1099s and 1042s that with the shutdown of the fire system, some of those people will be without a home unless they take action to get set up on yet another IRS system called IDS, International Data Exchange System. And so the issue here is that foreign filers can use IRIS for filing of forms, but only if they have a responsible party who has a US Social Security number or ITIN. If the responsible party doesn't have one of those numbers, then the organization can't use IRS. And so the IRS is pushing people in this situation to use this IDS system. And there's a link, if that happens to affect you, there's a link to their news release about it. It won't affect you unless you are an organization that needs to file forms and no responsible party in your organization has a US Social Security number or ITIN. That would be the only time you would ever need to use IDS. The third quarter was a busy quarter for the IRS for releasing draft versions of various information returns, form eighty eight oh nine, various 1099s and 1098 forms, and I'm not going to r even tell you in this podcast what all of these drafts say. I'm just going to point you to the blog post where I wrote a sentence or two about what seems to be new in each of these forms that were released. Do note that it doesn't appear that there's anything earth shattering on any of these forms, just some either cosmetic changes or like on the eighty-eight oh nine under what's new, there's a mention of iris replacing fire and how those new forms that we were telling you about are now listed on the eighty eight oh nine. Those new additions to the information return family. Other than that, nothing earth shattering. And finally, in September, the Treasury Department obsoleted 71 pieces of guidance issued through the years that no longer apply. This is another nothing earth shattering thing because this obsolescence relates either to things that have naturally expired or are just no longer applicable because of changes in the law. And what happens is that things sometimes fall through the cracks. And so periodically the Treasury Department cleans up these old and out-of-date things that it catches. This is another one where I'm not going to read every single thing to you. I do lay out in the blog post every single thing, but I'm not going to read all of that to you in this podcast. There's some things relating to 1099K, the change in the thresholds that had been put in place in the American Rescue Plan and then rolled back in the big beautiful bill, and then some older things that applied to the early days of 1099K going on fifteen years ago now, and these things have long since become not applicable, and so they've been obsoleted. That's the technical term for it. And there's several other things that have been obsoleted, and again I'm not going to read all of that to you. You can check out the blog post and read it for yourself. That'll do it for this week's episode of Information Return Intelligence powered by IOFM. We do this every week, so join us again next week for another episode.