Third Quarter Form 1099 News Roundup

Extinguishment of FIRE is Official

The IRS in August set the official end date (and time!) for FIRE — 3 pm Eastern Time on November 19.

The IRS has an online public meeting planned to discuss the transition, with one announced for October 28 from 1-2 p.m. Eastern time (click here for the link). Note that the link, as of our publication date, says the event is full, and they’re not taking any further registrations. If you’re interested, keep checking that link and/or watching for the IRS to add more sessions.

CP2100 Season

If you’re reading this “live” in early October, it’s prime CP2100 letter season. These letters are important for compliance and for avoiding backup withholding, so make sure you take them seriously when you receive one. See this article for more information on CP2100 letters.

In a related note, in early July the IRS announced that it has enhanced Business Tax Accounts to allow for a download of an EIN verification that can “be used in place of a Letter 147C.” However, the IRS also mentions using this at banks and other financial institutions.

Letter 147C is an important compliance letter as part of the Second "B" Notice process. Your author does not believe that you can accept a downloaded EIN verification from the internet. All published guidance relating to B Notices says it “must” be a Letter 147C, and the online verification is not a Letter 147C.

Still No W-9

We’ve been waiting for over a year now, and the draft of the W-9 is still in draft status. The last update to the draft was in May. That draft said “June 2026” on it, but obviously that didn’t mean anything. Your author still believes the new W-9 will be released for real before the end of the year.

Substitute Forms

In July, the IRS released its annual update to the rules for substitute forms. Most organizations need to at least be aware of the existence of these rules. If you’re using a third-party provider to prepare the 1099s you send to recipients, you’re almost certainly fine, but you should still be aware of these rules.

There are no changes to prior years, but we were given some new forms (and one departing form):

• 1098-VLI: issued by lenders to people with certain auto loans (as part of the One Big Beautiful Bill deduction for auto loan interest paid)

• 1099-LPS: relating to long-term care premiums paid

• Form 5498-TA: relating to Trump Account contributions

• Form 1099-DA: digital asset reporting; still listed as a new form by the IRS in Revenue Procedure 2026-18.

And one form is being removed:

• 1098-MA: relating to the Hardest Hit Fund, Short Refinance, and Making Homes Affordable programs. Funding for these programs has expired and run out. The IRS says references to this form have been removed.

1099-NEC and 1099-MISC Instructions Released

The IRS released the 2026 instructions for Forms 1099-NEC and 1099-MISC in July. This is after releasing the forms themselves in June.

The instructions don’t break any new ground compared to what we’ve talked about before, but let’s quickly recap.

Address Fields

The first thing the IRS lists under “What’s New” in the instructions is address fields. The IRS says:

“For the Payer’s and Recipient’s information, we separated the address fields into individual entry boxes.”

In the article on Revenue Procedure 2026-18, as well as articles earlier in the year on draft versions of 1099-NEC and 1099-MISC, I talked about this change. Initially, I thought that this was just a cosmetic change. I am not 100% convinced about this just being cosmetic — I am digging into IRIS specifications to see if this has any impact on layout requirements in IRIS. I have not found anything yet.

E-Filing

The IRS continues to list the e-file threshold under what’s new, even though this changed several years ago. This is referring to the fact that filers must e-file if the total number of information forms they’re filing is 10 or more.

Overtime and Tips

And lastly, the IRS lists the new boxes for reporting of certain overtime and tips the recipient received during the year. We have covered this several times before, most recently here.

IRS Releases FAQs on Overtime Deduction

In August, the IRS released more frequently asked questions on the overtime deduction. The FAQs don’t break any new ground, but they reinforce something we have talked about here before: when will you ever put overtime on a 1099? The answer is, you’ll do it when you have a worker who is an employee for Department of Labor tests, but a contractor for IRS tests.

Form 1099-K Backup Withholding Final Regulations Released

In August, the Treasury Department released final regulations on Form 1099-K backup withholding thresholds. These regulations simply align Form 1099-K backup withholding with the revised reporting thresholds for third-party settlement organizations (TPSOs) under the One Big Beautiful Bill (OBBBA)

The original law relating to TPSO reporting (1099-Ks) called for a TPSO to issue a form when the recipient of money via a TPSO for business transactions had more than 200 transactions processed and received more than $20,000. The American Rescue Plan called for a reduction in this threshold to $600.

OBBBA resets the reporting threshold back to 200 transactions and $20,000. So, Treasury needed to realign the backup withholding regulations back to those thresholds, and that’s what these regulations do.

IRS Streamlined Penalty Abatement

The IRS in July announced a change to the long-standing first-time penalty abatement. First-time penalty abatement was available for many late-filing penalties of filers who haven’t incurred penalties in the last three years, but it required the taxpayer to specifically request the abatement.

Now, the IRS is phasing in a new program where it will automatically apply the penalty abatement without the taxpayer needing to apply for it.

As with the Kwong case, this is of limited use to this audience, because it doesn’t apply to late filing of information returns. However, as with Kwong, it could be useful with late-filing penalties associated with Form 945 or Form 1042.

Tax Court Case Reminds Us About Attorney Fees in a Settlement

In July, a Tax Court case called Eiler v. Commissioner gave us a good reminder about how attorney fees are a part of legal settlements. When a settlement is taxable to the recipient, the whole amount is taxable, even if much of the settlement actually goes to their attorney.

In the Eiler case, a couple with the last name of Eiler received a settlement of $64,750. Their attorneys got $60,050 of the settlement (that’s 92.7%…), and the Eilers got $4,700. The dispute between the Eilers and the IRS was whether they should be taxed on $4,700 or $64,750.

The Court ruled that the proper amount was $64,750. This was “their” money, and the amounts taken by the attorney represented fees — debt, basically — that they owed the attorney. The Eilers still owned the benefits of the money.

This creates a situation of phantom income — they only got $4,700, but they’re taxed on $64,750.

Editorial commentary: This was not a surprising ruling, as other cases through the years have reached similar conclusions.

IRS Reminds of the IDES System for Foreign Filers

With the shutdown of the FIRE system in December, some foreign filers of 1099s and 1042-S will be without a home unless they take action to get set up on yet another IRS system, called “IDES.” IDES stands for International Data Exchange System.

Foreign filers can use IRIS, but only if they have a responsible party who has a U.S. Social Security Number or an ITIN. If they don’t have one of these numbers, then the organization cannot use IRIS. Enter “IDES.” The IRS shared more in this news release in August.

Draft Forms and Instructions Released

8809

On August 19, the IRS released a draft of the instructions to Form 8809. This is the form organization side for requesting extensions for filing W-2s, 1099s and Form 1042-S with the IRS.

The “what’s new” items in the draft instructions are a mention of FIRE being retired and replaced by IRIS, and a mention of new checkboxes being added to the form for extending Form 1099-LPS and Form 5498-TA.

Organizations needing to file this form do so in IRIS or by mailing it to the IRS. Extending W-2s and 1099-NECs requires a justification and is not automatic. Other types of forms receive an automatic 30-day extension by filing the form.

1096, 1099-B, 1098-E, 1098-T and 1099-LPS

Draft instructions for the 2027 versions of various forms, including 1096, 1099-B, 1099-LPS, 1098-E and 1098-T were also released in August. In all of these instructions, the IRS has nothing listed under what’s new for the 2027 form. (NOTE: 2027 is correct; the 2026 versions of these forms have already been released.)

1098

Draft instructions for the 2027 (not 2026, which is already out in its final format) Form 1098, mortgage interest, were also released in August. Under “What’s New,” the IRS lists that the address fields are now broken into separate fields, and that the form is “continuous use,” meaning they won’t be releasing new versions each year.

1096

There are no changes to Form 1096, other than new forms such as the 1099-LPS and 5498-TA have been added to the list shown on the 1096. Form 1096 only comes into play if you are filing forms on paper with the IRS.

1098-E and 1098-T

Draft instructions for the 2027 (not 2026, that is already out in its final format) Form 1098-E (student loan interest) and Form 1098-T (tuition) were also released in August. The IRS has nothing listed under what’s new for the 2027 form.

1099-DIV

Draft instructions for the 2027 (not 2026, that is already out in its final format) Form 1099-DIV (dividends) were posted in September. There are no changes, except for a note about address layouts and how liquidating distributions have a $2,000 threshold instead of $600.

Form 1098-VLI

Draft instructions for the 2026 version of Form 1098-VLI have been released. This form is to report interest payments received by lenders who make certain auto loans. OBBBA created a new deduction for certain interest payments on loans to purchase new, American-made vehicles. This form helps facilitate that deduction.

Various Items Obsoleted

The Treasury Department in September obsoleted 71 pieces of guidance issued through the years that no longer apply. Nothing earth-shattering is on the list, as the obsolescence relates to things that have either naturally expired or simply are no longer applicable. What happens is, things fall through the cracks, so periodically, the Treasury Department cleans up old and out-of-date things that it catches.

Items Relating to Form 1099-K

As noted above, in 2021, the American Rescue Plan (ARPA) called for a reduction in the Form 1099-K reporting threshold for TPSOs. In response to that, the IRS and Treasury Department issued various pieces of guidance. OBBBA then struck down the ARPA changes and rolled the thresholds back to what they were before. Because of this, pieces of guidance issued after the ARPA changes are now obsolete.

Those pieces of guidance are Notice 2024-85, Notice 2023-74, and Notice 2023-10, all of which phase in the ARPA thresholds. These notices are old to begin with, and now are irrelevant.

Notice 2013-56 has been obsoleted. This Notice gave certain relief to issuers of the 1099-K relating to name/TIN mismatches. The relief applied only to 2012 and 2013, so the Notice has been obsoleted.

Notice 2011-89 has been obsoleted as well. This Notice provided penalty relief relating to the 1099-K but only applied to the 2011 tax year.

Notice 2009-19 requested public comment on various items relating to 1099-K law, which was new at the time. That comment period has long since passed, and so this Notice is finally being obsoleted.

Item Relating to ACA Changes to Section 6041

Notice 2010-51 has been obsoleted. The Affordable Care Act originally changed section 6041 to expand reporting requirements in ways we won’t get into in this article. Thankfully, this expansion was repealed before it ever took effect. This Notice had lived in the shadows since then, but the Treasury Department eventually noticed it and has obsoleted it.

Old, Obsolete Guidance on Gambling Withholding

Notice 93-7 announced changes to the withholding rate for certain gambling proceeds. This Notice became obsolete in 2001, and has been rooted out in this latest wave of searching for obsolete items by the Treasury Department.

Form 1099-B

Notices 2012-34, Notice 2012-11 and Notice 2011-18 provided various transitional relief to issuers of forms where basis reporting was needed (i.e., Form 1099-B). This relief has long since become obsolete.

Gross Proceeds Paid to an Attorney

Back in 2001, the Treasury released Notice 2001-7, delaying implementation of proposed regulations relating to gross proceeds paid to an attorney. The final regs were issued in 2006, making this Notice obsolete long ago.