Who is Impacted?
Payors and withholding agents that are required to furnish a written statement to a recipient and would like to do so electronically instead of on paper will be interested in a quick refresher on the rules for electronic delivery of recipient statements. This includes furnishing the statement to recipients of Forms 1098, 1098-E, 1098-F, 1098-MA, 1098-Q, 1098-T, 1099-A, 1099-B, 1099-C, 1099CAP, 1099-DIV, 1099-G, 1099-INT, 1099-K, 1099-LS, 1099-LTC, 1099-MISC, 1099-OID, 1099-PATR, 1099-Q, 1099-QA, 1099-R, 1099-S, 1099-SA, 1099-SB, 1042-S, 3921, 3922, 5498, 5498-ESA, 5498-QA, and 5498-SA. It also includes Form W-2G (except for horse and dog racing, jai alai, sweepstakes, wagering pools, and lotteries). Remember, until further guidance is issued, you cannot furnish Form 1098-C electronically.
Publication 1179, General Rules and Specifications for Substitute Forms 1096, 1098, 1099, 5498, and Certain Other Information Returns, includes the rules for electronic delivery of recipient statements in Section 4.6. The most recent version reprinted from ‘Internal Revenue Bulletin 2019-29’ is dated July 15, 2019. It is important to note that your organization must meet these requirements in order to be treated as timely filing these recipient statements! Below are some quick reminders regarding consent from recipients and formatting that are not always top of mind.
The How’s and Why’s of Consent
Under the rules, a recipient must consent in the affirmative to receiving the statement electronically. The recipient must not have withdrawn this consent before the payor or withholding agent furnishes the statement.
How does the recipient consent? The recipient must consent electronically and in a way that demonstrates that he or she can access the statement in the electronic format in which it will be furnished.
Payors and withholding agents are required to notify recipients whether there are any hardware or software updates before furnishing the statement, so that the recipient may adjust accordingly. Each time there is a new hardware or software release or updates, then the recipient must provide a new consent to receive the statement electronically.
Prior to furnishing the statements electronically, payors and withholding agents must provide recipients with a statement that prominently displays the following:
- If the recipient does not consent to receive the statement electronically, a paper copy will be provided.
- The scope and duration of the consent. To which year does the consent apply? Will the consent apply to each year the statement is furnished or only for the January 31st (February 15th for Forms 1099-B, 1099-S, and 1099-MISC with payments reported in box 8 or 14) immediately following the date of the consent?
- Instructions for the recipient on how to obtain a paper copy after giving consent.
- Instructions for the recipient on how to withdraw the consent. The recipient may withdraw consent at any time by furnishing the withdrawal in writing (electronically or on paper) to the person whose name appears on the statement. The confirmation of the withdrawal will also be in writing (electronically or on paper).
- The details of the Notice of termination. The notice must state under what conditions the statements will no longer be furnished to the recipient.
- Procedures for the recipient to update its information.
- A description of the hardware and software required to access, print, and retain a statement, and a date the statement will no longer be available on the website.
Format, Posting, and Notification
Payors and withholding agents must confirm that the electronic format contains all of the information required and that it complies with the guidelines in Publication 1179 to ensure a valid substitute form. Further, in compliance with the information reporting deadlines, payors and withholding agents must post, on or before the January 31st (February 15th for Forms 1099-B, 1099S, and 1099-MISC with payments reported in box 8 or 14) due date, the applicable statement on a website accessible to the recipient through October 15th of that year. Finally, they must be sure to inform recipients, electronically or by mail, of the posting and how to access and print the statement.
How to Implement?
Do you have consent from recipients to furnish these information returns electronically? Are you doing so in the correct manner? Many payors and withholding agents skirt these important rules and guidelines. Here are a few items to consider:
- Double check your statements annually to recipients to confirm that they include the required language.
- Review any vendor applications and packages to confirm whether they include these statements.
- Discuss consents and statements to recipients with your legal department and other interested departments such as marketing, client services, etc. to understand any impacts to existing statements.
- Review timelines and deadlines to confirm that you are posting recipient statements on time.
- Review Publication 1179 each year to confirm required updates to format and guidelines to ensure your statements meet the substitute form requirements.
- Update process and procedure manuals accordingly for the consents, retention and overall process to obtain and maintain consents as well as the year end process for the electronic delivery.
Treas. Reg. s. 31.6051-1.
Treas. Reg. s. 1.6050S-2 and 1.6050S-4 for electronic furnishing of Forms 1098-E and 1098-T.
Treas. Reg. s. 1.6050W-2 for electronic furnishing of Form 1099-K.
Proposed Treas. Reg. s. 1.529A-7 (taxpayers may rely on the provisions of the proposed regulations) for electronic furnishing of Forms 1099-QA and 5498-QA
Notice 2004-10, 2004-1 C.B. 433 for electronic furnishing of Forms 1099-R, 1099-SA, 1099-Q, 5498, 5498-ESA, and 5498-SA.
Treas. Reg. s. 1.1461-1(c)(1)(i) for electronic furnishing of Forms 1042-S.