To access the 1099 System, log on to STARS, then at the STARS menu, enter M in the Function field and press ENTER.

The 1099 System extracts information from the STARS based on the following:

1:  Organization Control Table SAO EIN INDICATOR is YES.

2:  Exclude transactions in “*” batches.

3:  Transaction Code must post to the Vendor Payment File.

4:  Subobjects used by agencies when paying a vendor.

5:  1099 Indicator on the Vendor Edit Table.

6:  Determining the $600 threshold.

7:  Vendor Record has a Y in the 1099 NAME/ADDR field.

A combination of this information, plus an accumulation of $600 or more paid statewide to a vendor, determines if a 1099-MISC tax form will be generated for a vendor.

1:  Organization Control Table SAO EIN Indicator is Yes

The 1099 System uses the SAO EIN IND indicator on the Organizational Control Table to determine whether the agency or the State Controller’s Office (SCO) will report 1099-MISC information.

Table 25 – Organization Control Table

“Y” means SCO will do the 1099-MISC tax reporting to the IRS on behalf of the agency.  “N” means the agency will do their tax reporting directly to the IRS.

The majority of Idaho state agencies use the SCO’s 1099 System to report to the IRS and State Tax Commission. The SCO staff updates this indicator each year based on the 1099 Survey sent out in October or November.

2:  Exclude Transactions From P-Card (“*”) Batches

As of 2011, the bank that issues P-Cards will report 1099Misc reportable payments. Therefore, the 1099 system will exclude all payments and adjustments made in the P-card ‘*’ batch type (aka “splat batch”).

3:  Transaction Code Must Post to the Vendor Payment File

The 1099 System extracts information from transactions that are on Vendor Payment Files. The system extracts transactions with effective dates from January 1 through December 31 of each calendar year by using both the Prior Year Vendor Payment File (January 1 – June 30) and the Vendor Payment File (July 1 – December 31).

If a payment is 1099-MISC reportable, you must use a transaction code that posts to the vendor payment file. The Transaction Code Decision Table has an indicator (Y or N) to show if the transaction code will post to the vendor payment file:

If a transaction code that you want to use on a transaction does not post to the Vendor Payment File, you would have to report a 1099-reportable payment to the SCO 1099 system manually. To avoid this, add the vendor you need to pay to the Vendor Edit Table. Then you can use the TC 230 transaction code to pay that vendor.

To find out if a transaction code posts to the Vendor Payment File, recall the transaction code on Transaction Code Decision Table Maintenance/Inquiry Screen 28 and look at the VEND-PAYMENT indicator. You could also view the indicator (VENDOR-PAYMENT-IND) for the transaction code on the DAFR8640 Transaction Code Decision Table Report. 

4:  Subobjects Used When Paying a Vendor

Every transaction that posts to the Vendor Payment File requires an expenditure subobject. Any expenditure subobject that is set up for 1099-MISC reporting could be extracted by the STARS 1099 system.

A Vendor Payment File Inquiry in STARS will show subobjects (SOBJ) used on vendor transactions.

5:  1099 Indicator on the Vendor Edit Table

The two types of 1099 Indicators are:

• Y - 1099-MISC reportable vendor
• N - not 1099-MISC reportable vendor

“N” is used with the following vendor types (“Y” is used on all other vendor types:

• E - Employee (state employee) – Employee business expense reimbursements are generally not 1099-MISC reportable.
• G - Government (federal, state, and local government) – Since governmental agencies are not engaged in a trade or business (operate for gain or profit), they are not 1099-MISC reportable.
• C - Corporation (usually identified by “Corporation”, “Incorporated”, “Inc.”, or “Corp.” in the name.  If the name contains only the designation “Company,” the payments must be reported – unless you have received confirmation (such as a completed From W-9) that verifies the corporate status of the vendor.  Payments to corporations are not 1099-MISC reportable unless the payment is for medical and health care, payment for attorneys’ fees, or gross proceeds paid to an attorney.  The 1099 System extracts these types of payments during the review of subobjects used, regardless of the “N” 1099 Indicator on the vendor.
• N - Non-profit (some non-profit organizations) – Payments to non-profit or charitable organizations that are tax-exempt are not reportable.  SCO verifies all vendors submitted as non-profits against the IRS Publication 78 found on www.irs.gov. If the vendor is found on Publication 78, the vendor is added with the ‘N’ vendor type.  If the vendor is not found on Publication 78, the vendor is added with the ‘O’ or Other Vendor type.

6:  Determining the $600 Threshold

The $600 threshold is based on the total of statewide payments to a vendor. Your agency may have only paid $50 in 1099-MISC reportable transactions, but another agency might have paid $2,000 to the same vendor. The total for the two agencies exceeds the $600 threshold.  Therefore, when you submit any manual information to the SCO for input into the 1099 System, you must include all amounts, even those under $600. The 1099 System will total all payments and report only on those totaling over $600 statewide.

7:  Vendor Record has a “Y” in the 1099 NAME/ADDR field

The 1099 System uses the address of the vendor record that has a “Y” (yes) in the 1099 NAME/ADDR field as seen on the Vendor Edit Table Maintenance/Inquiry Screen 021.

If there is no “Y” on any of the suffixes for the vendor number, the 1099 System will use the first record on the Vendor Edit Table for that vendor number.

Matching the 1099-MISC form with the IRS

The SCO submits the 1099-MISC information to the IRS. The IRS compares the information to a file containing all social security numbers issued by Social Security Administration, and all employer identification numbers (EINs) issued by the Internal Revenue Service. The IRS allows words or titles (e.g., Mr., Mrs., Dr., etc.), but they may drop this information during the processing.

If the 1099-MISC matches the name/TIN combination in the file, the 1099-MISC is accepted. If the name/TIN combination does not match, the 1099-MISC is considered a “non-match”.

After the IRS runs the information through the matching process, they notify the State Controller’s Office of the non-matching name/TIN combinations.

IRS Name/TIN non-matches

Each year, the IRS compiles the non-matched information and sends it to the State Controller’s Office, along with a letter outlining the IRS’s proposed penalties. The SCO accounts for all match problems to show why the IRS should waive the proposed penalties. The IRS sends a list of non-matches in the spring, and a follow up list in the again in fall.

After receiving the list in the spring, the SCO checks it against the current Vendor Edit Table to see if the IRS information agrees with the Vendor Edit Table.

• IRS NON-MATCHED INFORMATION IS DIFFERENT FROM THE CURRENT VENDOR EDIT TABLE INFORMATION - If a name or number change was processed after the submission of the 1099-MISC data, the vendor is left in the active status. A change would indicate that an agency has already provided the SCO with updated information.
• IRS NON-MATCHED INFORMATION IS THE SAME AS THE CURRENT VENDOR EDIT TABLE INFORMATION - If the vendor name and number have not been changed since the reporting, the vendor is inactivated and information is added to the contact name field identifying the record as being a “IRS Match Error”.  Before the vendor can be re-activated, the vendor must supply a new, signed W-9 and SCO must verify that information using the IRS TIN matching application

After receiving the list in the fall, the SCO repeats the process. The SCO determines whether this is the first or second time within three calendar years that the IRS has notified SCO that the name/TIN is incorrect.
 

Any vendors that are still inactive from the spring are sent the appropriate IRS “B” Notice.  The first “B” Notice is sent to vendors in the first year of non-match status and requires the vendor to complete and sign a new IRS Form W-9.  The second “B” Notice is sent to vendors in the second of three years of non-match status, and requires a certification from either the SSA or the IRS that the name/TIN combination is correct.

Possible Penalties to a State Agency

THE 2/3 RULE

If the IRS determines that the vendor has been reported as a non-match name/TIN combination two out of three years, the State could be fined $50 per return.  The SCO will pass this fine on to the state agency (usually the W-9 AGY) that set up the incorrect vendor information. If it can be determined that another agency has changed the vendor with incorrect information, the CHG AGY will incur the fine.

FAILURE TO FURNISH CORRECT PAYEE STATEMENTS (1099s TO VENDORS)

“Payee statement” has the same meaning as “statement to recipient”.  If the vendor is provided with incorrect information on the 1099-MISC, the State could be subjected to a penalty.  Therefore, the agencies should review the 1099 reports and make sure that they notify the SCO of all changes by any stated deadlines.

Why does the SCO inactivate the vendor?

The SCO inactivates IRS non-match vendors until we receive a signed W-9 from the vendor certifying their TIN. IRS requires a signed Form W-9 that certifies that the TIN is correct. In addition, SCO will verify the new W-9 using the IRS TIN matching application.

When the IRS notifies the SCO of an incorrect match, they are required to send a B-Notice to the vendor and request a W-9 certifying the vendor’s TIN. The vendor will remain inactive until the SCO receives a new signed W-9, and SCO verifies the information. If the non-match is the second non-match in a three-year period, the vendor is required to contact the SSA (for social security numbers) or the IRS (for employer identification numbers) for a certification showing the name/TIN combination in their records.

The State of Idaho has chosen not to do backup withholding. Instead, the State withholds payment until the vendor provides either a signed W-9, or the certification described above.
 

How does a Vendor get re-activated?

Before SCO can re-activate a non-matched vendor, the SCO requires a signed W-9 form (or SSA/IRS certification letter) from the vendor. When the SCO receives it, they verify the information using the IRS TIN matching. If the name/number combination is correct, SCO updates the vendor information accordingly, and the vendor number will be available for future payments in SCO applications. If the name/number combination does not match, SCO contacts the vendor for a corrected signed W-9.