IRS Proposes NEW 1099-NEC form PLUS best practices for managing W-9 forms.

I recently had the pleasure of joining Debra Richardson on her weekly podcast to discuss the new proposed Form 1099-NEC form and best practices for managing the W-9/1099 form process. The IRS is looking to bring back Form 1099-NEC, last seen in 1982! They are looking to see nonemployee compensation payments reported separately on Form 1099-NEC and no longer in box 7 on Form 1099-MISC. Join us as we discuss the potential consequences of this change and how companies should be prepared.

We also talk about the best practices for managing the Form W-9/1099 process using W9manager. The goal at W9manager is to help companies complete their process each year before the season even starts. We all have better things to do in January! I encourage you to make your commute productive and learn while you drive!

Debra Richardson is an expert on managing the accounts payable process efficiently and securely. If you need expert advice in the payables area or just want to learn more, visit her site at www.debrarrichardson.com.

Does a W-9 form have to be signed?

Most companies ask for all W-9 forms to be signed.  However, it is a relatively unknown fact that the IRS does not require most W-9 forms to be signed (or certified.)  The certification instructions on the W-9 form state that generally for “payments other than interest and dividends, you are not required to sign the certification, but you must provide your correct TIN.”   As most companies outside of the financial sector don’t deal with financial transactions, they can reduce the time and effort of obtaining W-9 forms by not requiring a signature.

W-9 forms required to be signed by the IRS

There are three areas where a W-9 form needs to be signed.  Most of these do not relate to payments reported on a 1099-MISC.

Financial transactions

W-9 forms related to the following financial transactions are required to be signed. Interest accounts - bank interest (1099-INT) Dividend accounts (1099-DIV) Barter exchange accounts (1099-B) Broker accounts (1099-B) Original issue discounts (1099-OID) Patronage dividends (1099-PATR) Real estate transactions (1099-S)

"B" notice

The IRS also requires that a signed W-9 form is obtained when a company receives the first “B" notice from the IRS.  A “B Notice” (CP2100/A) is sent by the IRS when the name and the TIN number on a 1099 form issued by a company to a vendor do not match the IRS files or the files of the Social Security Administration.   Companies are then required to obtain a new W-9 form from their vendor and the new W-9 form must be signed.  If a company has not received any of these notices, this signature requirement is not applicable.

FATCA payments

U.S. companies that make payments subject to FATCA rules that are paid to a foreign corporation, insurance company, bank or other related foreign financial institution could be required by the IRS to withhold 30% of the gross payment.  However, this withholding requirement can be avoided if the company receives a signed W-9 form.  By signing the W-9 the signer certifies under the penalty of perjury that they are “a U.S. citizen or other U.S. person.”  This W-9 certification tells the company that FATCA does not apply and the payment is subject to the standard 1099 guidelines.  Note that this applies to payments made in the course of a trade or business. If no documentation is obtained from the vendor, the U.S. company will be required to apply the FATCA presumption rules.   These rules require the company to assume that the vendor is a foreign individual or company and withhold 30%. What is a FATCA payment? FATCA payments are typically financial transactions such as loan interest, stock dividends, financial services fees, annuity payments, and life insurance premiums.  They also include gross proceeds from the sale or other disposition of any property of a type that can produce U.S. source interest or dividends.  The payment is typically made to a foreign corporation, insurance company, bank or other related foreign financial institution.  For additional information visit the IRS's FATCA page.

W9manager

At the start of creating every W-9 form, W9manager asks the question “Is the named individual or entity on this Form W-9 a U.S. citizen or a U.S. person?”  A user can only continue creating a W-9 form if they answer “Yes” to this question.  This adds an additional level of assurance that the person or entity creating the W-9 form using W9manager is a US person.

Best practice

W9manager recommends that companies request an unsigned W-9 unless there is a specific requirement for a signature.  This practice will greatly help speed up the W-9 collection process as anyone in the vendor’s accounting department can complete the W-9 request.   Otherwise, there may be a delay while the accounting department works to get an authorized person to sign the form.  Create and send your own W-9 form using W9manager today!  It’s always free.

Additional references

Listed below are some additional technical reference related to W-9 form signature requirements.

Form W-9 Instructions, Part II. Certification

The instructions for Form W-9 include a specific section related to the signature (certification) requirements. To establish to the withholding agent that you are a U.S. person, or resident alien, sign Form W-9. You may be requested to sign by the withholding agent even if item 1, 4, or 5 below indicates otherwise. For a joint account, only the person whose TIN is shown in Part I should sign (when required). In the case of a disregarded entity, the person identified on line 1 must sign. Exempt payees, see Exempt payee code, earlier.

Signature requirements.

Complete the certification as indicated in items 1 through 5 below.
  1. Interest, dividend, and barter exchange accounts opened before 1984 and broker accounts considered active during 1983. You must give your correct TIN, but you do not have to sign the certification.
  2. Interest, dividend, broker, and barter exchange accounts opened after 1983 and broker accounts considered inactive during 1983. You must sign the certification or backup withholding will apply. If you are subject to backup withholding and you are merely providing your correct TIN to the requester, you must cross out item 2 in the certification before signing the form.
  3. Real estate transactions. You must sign the certification. You may cross out item 2 of the certification.
  4. Other payments. You must give your correct TIN, but you do not have to sign the certification unless you have been notified that you have previously given an incorrect TIN. “Other payments” include payments made in the course of the requester’s trade or business for rents, royalties, goods (other than bills for merchandise), medical and health care services (including payments to corporations), payments to a nonemployee for services, payments made in settlement of payment card and third party network transactions, payments to certain fishing boat crew members and fishermen, and gross proceeds paid to attorneys (including payments to corporations).
  5. Mortgage interest paid by you, acquisition or abandonment of secured property, cancellation of debt, qualified tuition program payments (under section 529), ABLE accounts (under section 529A), IRA, Coverdell ESA, Archer MSA or HSA contributions or distributions, and pension distributions. You must give your correct TIN, but you do not have to sign the certification.

Form W-9 Form, Certification Instructions

The certification instructions detailed on Form W-9 state that “For mortgage interest paid, acquisition or abandonment of secured property, cancellation of debt, contributions to an individual retirement arrangement (IRA), and generally, payments other than interest and dividends, you are not required to sign the certification, but you must provide your correct TIN.”

Instructions for the Requester of Form W-9, Electronic System

The Instructions for an electronic system state “For Forms W-9 that are not required to be signed, the electronic system need not provide for an electronic signature or a perjury statement.”

Publication 1281, Backup Withholding for Missing and Incorrect Name/TIN(s)

The IRS notes under the First “B” Notice section, page 12, that “it is your responsibility to send the appropriate “B” Notice to the payee, when required, to obtain the correct Name/TIN. This information may not be solicited by telephone. You need a TIN that the payee certifies as correct on Form W-9 in order to stop current backup withholding or prevent backup withholding from starting.”

FATCA Presumption Rules

The Instructions for the Requester of Forms W-8 includes a section that explains the IRS presumption rules.  These rules state that “if you do not receive a valid Form W-8 or Form W-9 that you may rely upon under the due diligence requirements, or cannot otherwise determine whether a payment should be treated as made to a U.S. or foreign person, you must apply the presumption rules provided in the Regulations under sections 1441, 1446, 1471, 6045, and 6049. If the presumption rules are applied to treat a person as a foreign person, the 30% withholding rate applies and cannot be reduced (for example, no treaty rate). You may not rely on the presumption rules if you have actual knowledge that a higher withholding rate is applicable. If you determine that you are making a withholdable payment to an entity and cannot reliably associate the payment with a Form W-8 or other permitted documentation that is valid for chapter 4 purposes, you are required to treat the entity payee as a nonparticipating FFI.” Disclaimer – Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. This article is also not a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.

Am I required to complete Form W-9?

Why is my customer asking for a W-9 form?

Companies that make payments in the normal course of their business are required to report certain payments to both the IRS and to the person or entity paid at the end of each calendar year.  This is typically done using Form 1099.  The IRS calls this requirement "Information Reporting" and the process is similar to the way that employers report wages paid to employees on Form W-2. When the payment for a product or service is required to be reported to the IRS on Form 1099, your customer is required to ask for your taxpayer identification number (TIN).  Your unique TIN is the way the IRS identifies you in its records.  A TIN is typically either your personal social security number (SSN) or an employer identification number (EIN). When the IRS receives the payment information on Form 1099 they compare that information to the income that you reported on your income tax return.  If the income that your report on your tax return does not include all the payments reported on all Form 1099s received by the IRS, your return could be red-flagged.  The IRS could then take steps to determine why all income earned was not reported.

The consequence of not submitting a W-9

If you do not provide your TIN number to your customer when requested, the customer will not be able to specifically report your income on Form 1099.  The IRS will then require your customer to reduce all payments to you by 24% and remit this amount to the IRS on Form 945.   (See our blog article on backup withholding). The IRS will hold your customer personally responsible for this 24% if they don't obtain the TIN number or withhold the required amount.  Additional penalties and interest could also be assessed in addition to the 24% in backup withholding.  Therefore, most companies put procedures in place to obtain all their vendor's TIN numbers in advance of making any payment.  Requesting Form W-9 to be completed is the standard process that the IRS has created for payers to obtain the TIN number. CONCLUSION:  Vendors are not required to submit a Form W-9, however, the likely result would be a 24% reduction in payments to them by their customers.  This is from the IRS's backup withholding regulation.  Therefore, when required to complete your W-9 form, it is advised to provide it to your customer. 

Examples of information returns

Examples of information returns that use information from Form W-9 include, but are not limited to, the following:
    • Form 1099-INT (interest earned or paid)
    • Form 1099-DIV (dividends, including those from stocks or mutual funds)
    • Form 1099-MISC (various types of income, prizes, awards, or gross proceeds)
    • Form 1099-B (stock or mutual fund sales and certain other transactions by brokers)
    • Form 1099-S (proceeds from real estate transactions)
    • Form 1099-K (merchant card and third-party network transaction)
    • Form 1098 (home mortgage interest), 1098-E (student loan interest), 1098-T (tuition)
    • Form 1099-C (canceled debt)
    • Form 1099-A (acquisition or abandonment of secured property)
Use Form W-9 only if you are a U.S. person (including a resident alien), to provide your correct TIN. Use W9manager's guided process to create your W-9 Why go through the hassle and uncertainty of creating and sending a paper W-9 form.  Use W9manager's guided step-by-step process to help create the most correct and complete W-9 form.   It is always free to create and send your W-9 form.  W9manager is not just another blank PDF form site.  Every step of the way has contextual help buttons tailored to your specific circumstance.  The W-9 form is then electronically signed and sent securely sent to the requester. You can then store your W-9 form centrally using W9manager.  Log into your account later and send it as needed.  If you need to create multiple W-9s for more than one company or individual, W9manager allows you to create multiple companies to manage them separately.  Finally, you can also use your mobile phone to send your W-9 from anywhere, to anyone, at any time. Create and send your W-9 form with W9manager today! Disclaimer – Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.

What is backup withholding?

Under certain circumstances an entity making payments in the normal course of business to a United States individual or an entity will be required to withhold 24% of the payment and remit it to the IRS. This is called “backup withholding”.  The main trigger for backup withholding is when the person or entity receiving the payment does not provide their TIN number to the paying entity.   Form W-9 is typically used to provide the TIN number to the paying entity.  The paying entity is required to include the TIN number to the IRS on any payments reporting on a Form 1099 at the end of the year. Payments that may be subject to backup withholding include interest, tax-exempt interest, dividends, broker and barter exchange transactions.  Rents, royalties, nonemployee pay, payments made in settlement of payment card and third-party network transactions, and certain payments from fishing boat operators may also be subject. Real estate transactions are not subject to backup withholding. Payments will not be subject to backup withholding if the US individual or entity provides the requester with their correct TIN, make the proper certifications, and report all their taxable interest and dividends on their tax return.

Backup withholding

Payments you receive will be subject to backup withholding if: 1. A TIN is not provided to the requester, 2. The TIN is not certified when required (see the Part II instructions on page 3 for details), 3. The IRS tells the requester that an incorrect TIN was furnished. 4. The IRS tells the entity or individual receiving the payment that they are subject to backup withholding because they did not report all their interest and dividends on their tax return (for reportable interest and dividends only), or 5. The entity or individual does not certify to the requester that they are not subject to backup withholding under 4 above (for reportable interest and dividend accounts opened after 1983 only).

Exempt payees

Certain payees and payments are exempt from backup withholding. See Exempt payee code on page 3 of Form W-9 and the separate  Instructions for the Requester of Form W-9 for more information.

What is a TIN number?

A Taxpayer Identification Number (TIN) is an identification number used by the Internal Revenue Service (IRS) in the administration of tax laws. It is issued either by the Social Security Administration (SSA) or by the IRS. A Social Security number (SSN) is issued by the SSA whereas all other TINs are issued by the IRS.

Taxpayer Identification Numbers

  • Social Security Number "SSN"
  • Employer Identification Number "EIN"
  • Individual Taxpayer Identification Number "ITIN"
  • Taxpayer Identification Number for Pending U.S. Adoptions "ATIN"
  • Preparer Taxpayer Identification Number "PTIN"

Do I Need One?

A TIN must be furnished on returns, statements, and other tax related documents. For example a number must be furnished:
  • When filing your tax returns.
  • When claiming treaty benefits.
A TIN must be on a withholding certificate if the beneficial owner is claiming any of the following:
  • Tax treaty benefits (other than for income from marketable securities)
  • Exemption for effectively connected income
  • Exemption for certain annuities

When Claiming Exemptions for Dependent or Spouse:

You generally must list on your individual income tax return the social security number (SSN) of any person for whom you claim an exemption. If your dependent or spouse does not have and is not eligible to get an SSN, you must list the ITIN instead of an SSN. You do not need an SSN or ITIN for a child who was born and died in the same tax year. Instead of an SSN or ITIN, attach a copy of the child's birth certificate and write Died on the appropriate exemption line of your tax return.

How Do I Get A TIN?

SSN

You will need to complete Form SS-5, Application for a Social Security Card (PDF). You also must submit evidence of your identity, age, and U.S. citizenship or lawful alien status. For more information please see the Social Security Administration website. Form SS-5 is also available by calling 1-800-772-1213 or visiting your local Social Security office. These services are free.

EIN

An Employer Identification Number (EIN) is also known as a federal tax identification number, and is used to identify a business entity. It is also used by estates and trusts which have income which is required to be reported on Form 1041, U.S. Income Tax Return for Estates and Trusts. Refer to Employer ID Numbers for more information. The following form is available only to employers located in Puerto Rico, Solicitud de Número de Identificación Patronal (EIN) SS-4PR (PDF).

ITIN

An ITIN, or Individual Taxpayer Identification Number, is a tax processing number only available for certain nonresident and resident aliens, their spouses, and dependents who cannot get a Social Security Number (SSN). It is a 9-digit number, beginning with the number "9", formatted like an SSN (NNN-NN-NNNN). To obtain an ITIN, you must complete IRS Form W-7, IRS Application for Individual Taxpayer Identification Number. The Form W-7 requires documentation substantiating foreign/alien status and true identity for each individual. You may either mail the documentation, along with the Form W-7, to the address shown in the Form W-7 Instructions, present it at IRS walk-in offices, or process your application through an Acceptance Agent authorized by the IRS. Form W-7(SP), Solicitud de Número de Identificación Personal del Contribuyente del Servicio de Impuestos Internos is available for use by Spanish speakers. Acceptance Agents are entities (colleges, financial institutions, accounting firms, etc.) who are authorized by the IRS to assist applicants in obtaining ITINs. They review the applicant's documentation and forward the completed Form W-7 to IRS for processing. NOTE: You cannot claim the earned income credit using an ITIN. Foreign persons who are individuals should apply for a social security number (SSN, if permitted) on Form SS-5 with the Social Security Administration, or should apply for an Individual Taxpayer Identification Number (ITIN) on Form W-7. Effective immediately, each ITIN applicant must now:
  • Apply using the revised Form W-7, Application for IRS Individual Taxpayer Identification Number; and
  • Attach a federal income tax return to the Form W-7.
Applicants who meet one of the exceptions to the requirement to file a tax return (see the Instructions for Form W-7) must provide documentation to support the exception. New W-7/ITIN rules were issued on December 17, 2003. For a summary of those rules, please see the new Form W-7 and its instructions. For more detailed information on ITINs, refer to:

ATIN

An Adoption Taxpayer Identification Number (ATIN) is a temporary nine-digit number issued by the IRS to individuals who are in the process of legally adopting a U.S. citizen or resident child but who cannot get an SSN for that child in time to file their tax return. Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions is used to apply for an ATIN. (NOTE: Do not use Form W-7A if the child is not a U.S. citizen or resident.)

PTIN

Beginning January 1, 2011, if you are a paid tax preparer you must use a valid Preparer Tax Identification Number (PTIN) on returns you prepare. Use of the PTIN no longer is optional. If you do not have a PTIN, you must get one by using the new IRS sign-up system. Even if you have a PTIN but you received it prior to September 28, 2010, you must apply for a new or renewed PTIN by using the new system. If all your authentication information matches, you may be issued the same number. You must have a PTIN if you, for compensation, prepare all or substantially all of any federal tax return or claim for refund. If you do not want to apply for a PTIN online, use Form W-12, IRS Paid Preparer Tax Identification Number Application. The paper application will take 4-6 weeks to process. If you are a foreign preparer who is unable to get a U.S. Social Security Number, please see the instructions on New Requirements for Tax Return Preparers: Frequently Asked Questions.

Foreign Persons and IRS Employer Identification Numbers

Foreign entities that are not individuals (i.e., foreign corporations, etc.) and that are required to have a federal Employer Identification Number (EIN) in order to claim an exemption from withholding because of a tax treaty (claimed on Form W-8BEN), need to submit Form SS-4 Application for Employer Identification Number to the Internal Revenue Service in order to apply for such an EIN. Those foreign entities filing Form SS-4 for the purpose of obtaining an EIN in order to claim a tax treaty exemption and which otherwise have no requirements to file a U.S. income tax return, employment tax return, or excise tax return, should comply with the following special instructions when filling out Form SS-4. When completing line 7b of Form SS-4, the applicant should write "N/A" in the block asking for an SSN or ITIN, unless the applicant already has an SSN or ITIN. When answering question 10 on Form SS-4, the applicant should check the "other" block and write or type in immediately after it one of the following phrases as most appropriate: "For W-8BEN Purposes Only" "For Tax Treaty Purposes Only" "Required under Reg. 1.1441-1(e)(4)(viii)" "897(i) Election" If questions 11 through 17 on Form SS-4 do not apply to the applicant because he has no U.S. tax return filing requirement, such questions should be annotated "N/A". A foreign entity that completes Form SS-4 in the manner described above should be entered into IRS records as not having a filing requirement for any U.S. tax returns. However, if the foreign entity receives a letter from the IRS soliciting the filing of a U.S. tax return, the foreign entity should respond to the letter immediately by stating that it has no requirement to file any U.S. tax returns. Failure to respond to the IRS letter may result in a procedural assessment of tax by the IRS against the foreign entity. If the foreign entity later becomes liable to file a U.S. tax return, the foreign entity should not apply for a new EIN, but should instead use the EIN it was first issued on all U.S. tax returns filed thereafter. To expedite the issuance of an EIN for a foreign entity, please call (267) 941-1099. This is not a toll-free call.

References/Related Topics

What is the purpose of Form W-9?

Form W-9 is an IRS created form used by an individual or an entity, like a company, to request the taxpayer identification number (TIN) and other information from parties they have paid.  A TIN number is typically an individual’s social security number or a company’s employer identification number.  The purpose of Form W-9 is to provide the TIN number needed to complete an "information return". 

Information return

An information return, like Form 1099-MISC, is used to communicate to the IRS reportable payments made to certain parties in the normal course of business.  A common reportable payment is one in excess of $600 paid to an independent contractor.  In this case, the company would ask the independent contractor to complete and return a Form W-9.  Please note Form W-9 should only be used if you are a U.S. person (including a resident alien) or company.

Federal tax classification

Form W-9 also asks for a party's federal tax classification.  This is helpful to the W-9 requester as certain types of payments made to specific entities do not need to be reported to the IRS on an information return.  In addition, the tax classification can be used along with the exempt payee code to determine that backup withholding is not required.

Backup withholding if Form W-9 is not provided

Another purpose of Form W-9 is to help ensure that full payment is received for goods and services sold.  If Form W-9 is not provided to the individual or entity that requests it, future payments can be subject to having part of the payment withheld (known as backup withholding) and remitted directly to the IRS.  This is similar to the way federal tax is withheld from an employee paycheck.  The current backup withholding rate is 24%.  In most cases, just remitting Form W-9 to the requester eliminates any requirement for backup withholding.

IRS review

The IRS summarizes the total payments reported on information returns and compares the total amount to the income reported on the taxpayer's income tax return.  If there are discrepancies the IRS may request further information from the taxpayer or initiate an audit.

The following is listed under “Purpose of Form W-9" in the IRS Form W-9 "General Instructions" section

An individual or entity (Form W-9 requester) who is required to file an information return with the IRS must obtain your correct taxpayer identification number (TIN) which may be your social security number (SSN), individual taxpayer identification number (ITIN), adoption taxpayer identification number (ATIN), or employer identification number (EIN), to report on an information return the amount paid to you, or other amount reportable on an information return. Examples of information returns include, but are not limited to, the following: • Form 1099-INT (interest earned or paid) • Form 1099-DIV (dividends, including those from stocks or mutual funds) • Form 1099-MISC (various types of income, prizes, awards, or gross proceeds) • Form 1099-B (stock or mutual fund sales and certain other transactions by brokers) • Form 1099-S (proceeds from real estate transactions) • Form 1099-K (merchant card and third-party network transactions) • Form 1098 (home mortgage interest), 1098-E (student loan interest) 1098-T (tuition) • Form 1099-C (canceled debt) • Form 1099-A (acquisition or abandonment of secured property) Use Form W-9 only if you are a U.S. person (including a resident alien), to provide your correct TIN. If you do not return Form W-9 to the requester with a TIN, you might be subject to backup withholding.  See Form W-9 and instructions here.

Use W9manager’s guided process to create your W-9. It's always free!

Why go through the hassle and uncertainty of creating and sending a paper W-9 form. Use W9manager’s guided step-by-step process to help create the most correct and complete W-9 form. It is always free to create and send your W-9 form. W9manager is not just another blank PDF form site. Every step of the way has contextual help buttons tailored to your specific circumstance. The W-9 form is then electronically signed and sent securely sent to the requester. You can then store your W-9 form centrally using W9manager. Log into your account later and send it as needed. If you need to create multiple W-9s for more than one company or individual, W9manager allows you to create multiple companies to manage them separately. Finally, you can also use your mobile phone to send your W-9 from anywhere, to anyone, at any time. Create and send your W-9 form with W9manager today! Disclaimer – Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues.  This article is also not a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.

Do I have to request Form W-9 from a corporation?

Summary

The Internal Revenue Code (IRC) states that payments to corporations generally do not have to be reported on an information return like Form 1099-MISC.   See Are payments to corporations reportable on a 1099-MISC form? for a discussion of exceptions.  The IRC goes on to state that you may treat a corporation as an exempt recipient (generally exempt from information reporting or receiving Form 1099-MISC) if one of the following indicators is met to identify the entity as a corporation.
  1. A Form W-9 is received which includes an EIN and a statement from the payee that it is a domestic corporation.
  2. You have on file a domestic corporate resolution or similar document clearly indicating corporate status.
  3. The name of the corporation contains an unambiguous expression of corporate status that is Incorporated, Inc., Corporation, Corp., P.C., (but not Company or Co.) or contains the term insurance company, indemnity company, reinsurance company, or assurance company.
There are two ways in practice that accounting departments comply with these indicators so they are not required to obtain Form W-9.  The first step is to look for Inc. or similar terminology on a company’s website, invoice, contract or other document.  The second step is to go to the Secretary of State’s website, complete a business search for the company name and download the Certificate of Incorporation for companies that are a corporation.  If you can determine that an entity is a corporation from one of these two indicators and has no reportable payments (for example, medical or attorney payments) you do not have to request Form W-9.   Please note that foreign corporations are outside the scope of this discussion.

The Long Answer

Internal Revenue Code section 1.6041-3 details payments for which no return of information is required under section 6041.  Paragraph (p)(1) of this section states that an information return is not required for payments made to “a corporation described in section 1.6049-4(c)(1)(ii).”  See Are payments to corporations reportable on a 1099-MISC form? for a discussion of exceptions.

Section 1.6049-4(c)(1)(ii)(A) listed below states that a payer may treat a corporation as an exempt recipient (who is generally exempt from information reporting) based on a properly completed Form W-9 or one of the indicators described in paragraph (c)(1)(ii)(A).

There are two ways in practice that accounting departments comply with these indicators so they are not required to obtain Form W-9.  The first step is to look for Inc. or similar terminology on a company’s website, invoice, contract or other document.  The second step is to go to the Secretary of State’s website, complete a business search for the company name and download the Certificate of Incorporation for companies that are a corporation.  If you can determine that an entity is a corporation from one of these two indicators and has no reportable payments (for example, medical or attorney payments) you do not have to request Form W-9.   Please note that foreign corporations are outside the scope of this discussion.

IRC Section 1.6049-4(c)(1)(ii)(A)

(ii) Exempt recipient defined. The term exempt recipient means any person described in paragraphs (c)(1)(ii)(A) through (Q) of this section. An exempt recipient is generally exempt from information reporting without filing a certificate claiming exempt status unless the provisions of this paragraph (c)(1)(ii) require a payee to file a certificate. A payor may, in any case, require a payee that is a U.S. person not otherwise required to file a certificate under this paragraph (c)(1)(ii) to file a certificate in order to qualify as an exempt recipient. See § 31.3406(h)-3(a)(1)(iii) and (c)(2) of this chapter for the certificate that a payee that is a U.S. person must provide when a payor requires the certificate to treat the payee as an exempt recipient under this paragraph (c)(1)(ii). A payor may treat a payee as an exempt recipient based upon a properly completed form as described in § 31.3406(h)-3(e)(2) of this chapter, its actual knowledge that the payee is a person described in this paragraph (c)(1)(ii), or the indicators described in this paragraph (c)(1)(ii). (A) Corporation. A corporation, as defined in section 7701(a)(3), whether domestic or foreign, is an exempt recipient. In addition, for purposes of this paragraph (c)(1), the term corporation includes a partnership all of whose members are corporations described in this paragraph (c)(1), but only if the partnership files with the payor a certificate stating that each member of the partnership meets one of the requirements of paragraph (c)(1)(ii)(A) (1) through (4) of this section. Absent actual knowledge otherwise, a payor may treat a payee as a corporation (and, therefore, as an exempt recipient) if one of the requirements of paragraph (c)(1)(ii)(A) (1), (2), (3), or (4), of this section are met before a payment is made. (1) The name of the payee contains an unambiguous expression of corporate status that is Incorporated, Inc., Corporation, Corp., P.C., (but not Company or Co.) or contains the term insurance company, indemnity company, reinsurance company, or assurance company, or its name indicates that it is an entity listed as a per se corporation under § 301.7701-2(b)(8)(i) of this chapter. (2) The payor has on file a corporate resolution or similar document clearly indicating corporate status. For this purpose, a similar document includes a copy of Form 8832, filed by the entity to elect classification as an association under § 301.7701-3(b) of this chapter. (3) The payor receives a Form W-9 which includes an EIN and a statement from the payee that it is a domestic corporation. (4) The payor receives a withholding certificate described in § 1.1441-1(e)(2)(i), that includes a certification that the person whose name is on the certificate is a foreign corporation. Disclaimer – Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.

What is a disregarded entity?

Here is the IRS definition of a disregarded entity from the "Specific Instructions" section of Form W-9: Disregarded entity. For U.S. federal tax purposes, an entity that is disregarded as an entity separate from its owner is treated as a “disregarded entity.”  See Regulations section 301.7701-2(c)(2)(iii). Enter the owner's name on line 1. The name of the entity entered on line 1 should never be a disregarded entity. The name on line 1 should be the name shown on the income tax return on which the income should be reported. For example, if a foreign LLC that is treated as a disregarded entity for U.S. federal tax purposes has a single owner that is a U.S. person, the U.S. owner's name is required to be provided on line 1. If the direct owner of the entity is also a disregarded entity, enter the first owner that is not disregarded for federal tax purposes. Enter the disregarded entity's name on line 2, “Business name/disregarded entity name.” If the owner of the disregarded entity is a foreign person, the owner must complete an appropriate Form W-8 instead of a Form W-9.  This is the case even if the foreign person has a U.S. TIN. This definition has significance for LLCs that only have one owner/member.  These entities are referred to as "single member LLCs" because they only have one member.  They are also considered a "disregarded entity" because the IRS looks past the LLC to the one owner/member for federal tax purposes.   Due to this the IRS requires the LLC to check the box "Individual/sole proprietor or single-member LLC" on the W-9. The name on line 1 should be the single owner/member's name and NOT the LLC's name.  The LLC's name would go on line 2.  The TIN number used in Part I should be the SSN or EIN number of the single member and not the LLC. One last thing to note, if the owner of a single member LLC is another single member LLC, the IRS looks past the second owner (or more) until it gets to an individual or entity that is not disregarded for tax purposes.

Are electronic W-9s legal?

Yes, electronic W-9s are legal as long as IRS guidelines are followed.  Here is what the IRS says about the electronic submission of Forms W-9 in their Instructions for the Requester of Form W-9. Electronic Submission of Forms W-9 Requesters may establish a system for payees and payees' agents to submit Forms W-9 electronically, including by fax. A requester is anyone required to file an information return. A payee is anyone required to provide a taxpayer identification number (TIN) to the requester.

Electronic system

Generally, the electronic system must: Ensure the information received is the information sent, and document all occasions of user access that result in the submission; Make reasonably certain that the person accessing the system and submitting the form is the person identified on Form W-9, the investment advisor, or the introducing broker; Provide the same information as the paper Form W-9; Be able to supply a hard copy of the electronic Form W-9 if the Internal Revenue Service requests it; and Require as the final entry in the submission an electronic signature by the payee whose name is on Form W-9 that authenticates and verifies the submission. The electronic signature must be under penalties of perjury and the perjury statement must contain the language of the paper Form W-9.

IRS Tip

For Forms W-9 that are not required to be signed, the electronic system need not provide for an electronic signature or a perjury statement.

For more details, see the following.

Announcement 98-27, which is on page 30 of Internal Revenue Bulletin 1998-15 at www.irs.gov/pub/irs-irbs/ irb98-15.pdf. Announcement 2001-91, which is on page 221 of Internal Revenue Bulletin 2001-36 at www.irs.gov/pub/irs-irbs/ irb01-36.pdf.