Every business, regardless of size or industry, faces the possibility of incurring information reporting penalties from the Internal Revenue Service (IRS). Knowing the appropriate actions to take upon receiving a notice, such as an IRS Notice CP2100 (B-Notice) or 972CG (P-Notice), is essential. Being well-informed is the first step in managing these IRS notices and safeguarding your business from potential fines.
What is a “P-Notice”, or IRS Notice 972CG?
A P-Notice, also known as IRS Notice 972CG, is an official alert from the IRS to businesses that have filed information returns with errors or discrepancies. The common triggers for this notice include:
- Missing or invalid name/TIN combinations. This occurs when a name and Taxpayer Identification Number (TIN) on a filed return does not match IRS records.
- Late filing of returns or late distribution of recipient forms, whereas the organization takes longer than 45 days.
- Submitting returns in an incorrect format.
The Implications of Errors: From B-Notices to P-Notices
Errors such as those involving inaccurate Name/TIN combinations often prompt the IRS to issue a CP2100 or B-Notice. This notice informs businesses of the errors and mandates backup withholding for the listed payees while requiring the solicitation of correct information.
If not managed properly, these B-Notices can lead to a P-Notice, where the IRS proposes penalties for the discrepancies noted. Effective management of B-Notices is crucial, as it forms the basis of demonstrating “reasonable cause” when seeking to abate penalties associated with a subsequent P-Notice.
How to Abate a P-Notice
Receiving a P-Notice offers businesses a critical opportunity to request penalty abatement by demonstrating a “reasonable cause” for the errors identified by the IRS. This process is more than merely acknowledging mistakes; it requires a business to present comprehensive documentation that shows diligent efforts were made to rectify the issues originally flagged by a B-Notice, such as soliciting accurate TIN information from recipients.
To demonstrate “reasonable cause,” businesses must provide the IRS with a clear timeline and evidence of their actions taken to correct discrepancies after receiving a B-Notice. This includes communication records with affected parties, updated logs of TIN verifications, and any correspondence with the IRS regarding efforts to resolve the issues. The documentation should clearly show a trail of proactive engagement—from internal audits to direct outreach efforts
The IRS scrutinizes the consistency of these efforts. Businesses are expected to both react to notifications and engage in continuous monitoring and correction processes. These proactive measures can significantly strengthen a case for penalty abatement, as they reflect a genuine, systematic approach to compliance, rather than sporadic, reactionary measures.
Preventing Notices: The Importance of TIN Verification
To altogether avoid B-Notices and subsequent P-Notices, businesses must ensure the accuracy of recipient information before the information reporting season begins. TINCheck offers tools that turn this complex challenge into a manageable part of operational routines:
- Real-Time TIN Verification: TINCheck’s Real-Time TIN Verification tool allows businesses to verify recipient information instantaneously. This service performs checks against multiple authoritative databases, including the IRS system, the Social Security Administration’s Death Master File, and the Office of Foreign Assets Control (OFAC) list.
This process helps prevent fraud by ensuring that the information used in filings is current and correct. As a result, the business stays protected from the risks associated with fraudulent or outdated recipient data. - Bulk TIN Verification: As tax season approaches, preparation is key. Bulk TIN Verification allows businesses to verify large batches of recipient Name/TIN combinations simultaneously. Ideally, organizations that handle large volumes of tax data should conduct these at least twice per year and well before major filing deadlines.This allows sufficient time to address any discrepancies discovered during the process.
These verification measures do more than just prevent penalties. They contribute to a culture of compliance and accuracy that can improve overall business operations. Ensuring that every piece of data is correct from the start means fewer disruptions in the workflow. In turn, businesses reduce the need for corrections down the line, and maintain a smoother, more reliable process for annual tax filings.
Learn more about TINCheck Bulk TIN and Real-Time TIN plans here.