Bear in mind: Private letter rulings (PLRs) only apply to the companies seeking them. But they do give you an idea of how IRS looks at certain issues.

In this case, employees sued the company for unpaid leave and vacation time. As part of the settlement, the court ordered the company to pay attorney’s fees for the employees in the suit. According to the PLR, the awarding of attorney’s fees is essentially a reimbursement of an expense. Therefore, it’s not subject to taxes or reporting.

You can the download the PLR here to see all the details.

Starting with Tax Year ’11, all “payment card transactions” will have to be reported on information returns, just like all your other vendor payments — but in this case, you’ll be relying on the card issuer or other third-party processor to hand over the vendor’s name, address, Taxpayer Identification Number (TIN) and the gross amount paid.

All of this is to make sure that those payments (a) get reported and (b) get taxed properly. The rule also drives home the point that these transactions are subject to backup withholding if you don’t have a TIN for the vendor –  just as any other payment would be. The problem there is, you can’t backup withhold on a payment that’s already been made.

For that reason, the rule also allows card issuers and other payment processors to immediately start submitting the names and TINs of vendors in their networks to IRS’ TIN Matching Program. The hope is that by getting a running start, the payment processors can confirm accurate TINs for every vendor and avoid having to do any backup withholding.

A new form 1099 needed?

Two things are still up in the air:

1. How exactly these transactions will be reported, and
2. How you and your card processor will need to interact to ensure all the correct info is recorded and filed.

It may require a new form altogether, or IRS may opt to simply add a few lines or boxes to the existing 1099-MISC. It may also require you and the bank or other third party that facilitates these payments for you to get together to revamp processes, confirm transaction records, etc.

The good news is: You have two years to prepare — and IRS still has time to work out the kinks. We’ll keep you posted on any developments.

You can read all the details here.

Keep these tips in mind to minimize your extra work — and make sure you’re covered if IRS has any questions about what you sent when:

• When sending W-2s and 1099s, make a copy of the postmarked envelopes for your files. It shows that you sent the documents on time and confirms that you had the right address from the start.
• If a form is returned by the postal service, keep it in the original envelope. If the employee or vendor provides you with a new address, you can merely send the entire package in a new envelope. If you don’t hear from them, hold the docs for 4 years — to show any future auditor that you did your required filing.
• For 1099s that need to be reissued, there’s a check box to indicate if it’s a duplicate or a correction. For W-2s, you’ll need to write “reissued statement” in the upper-right corner.

Bonus: If you have a lot of requests for duplicate W-2s or 1099s, consider this time-saver. IRS allows you to charge a nominal fee, say $5 or so, to reissue lost forms. You’d be amazed how many “lost” documents are found once people realize they’ll have to pay for a new copy.

Just be sure the document was actually lost or misplaced. You can’t charge for a duplicate if the person says he or she never received the original.

Just in time for year-end, IRS has thrown a rule change at you.

Fortunately, if you’re affected, it actually means a little less work for your company.

If you have nonqualified deferred compensation you’ve paid to employees, independent contractors or others, you just got a little extra time.

Those payments are supposed to be reported on either a 1099-MISC (Box 15A) or a W-2 (Box 12, Code Y), depending on the payee’s status. But IRS issued interim guidance that you will not have to report those payments for Tax Year ’08.

Note: Payees are still expected to pay whatever taxes they may owe on that compensation — a point you’ll probably want to clarify when you explain the change to any affected payees.

Notice 2008-115 is in effect until further guidance is issued. You can learn more about the issue here.

Some A/P departments ask for updated W-9s each year. That’s great if you have the time, but it does mean spending some time on tasks that don’t need to be done. 

Bear in mind: W-9s are good indefinitely, so if there’s no reason to believe a vendor’s information is out of date, you don’t need a new W-9. 

Best practice: Instead of hounding every vendor for a new W-9 (or even confirming the info) you may want to limit your efforts to companies who throw up a yellow flag that they may need a new form. Some of the signs:

• moving to a new location
• mergers or acquisitions (some merged companies take on the buying company’s TIN)
• a change in ownership (may indicate that a company is now a corporation).

The only time you have to get a new W-9 is if IRS sends a B-notice for a vendor.

What’s your take? Is it worth to get new W-9s (or their equivalent) from vendors each year? Or does it take more time than it saves? Let us know in the comments.

Of the 31,000 independent contractors IRS contacted about discrepancies, 65% took action. 

What’s it mean for you? It may slow down Congress’ push to force all payments to vendors to be reported on 1099s. Unless you love paperwork, that’s a good thing.

IRS is also looking for other “compliance-challenged” areas of taxation to apply a similar soft-touch approach. No word yet on what areas that might be, but we’ll keep you posted.

The process, known as TIN masking, is needed because W-2s and 1099s are usually mailed. Given the sensitive information inside – and the prominent “Important Tax Document” notice on the front — they’re particularly vulnerable to being stolen and used to facilitate identity theft.

The value of TIN masking is clear — for payees. How much it benefits Payroll and A/P is still up for debate. It would give your company some protection from con artists trying to use your data for nefarious purposes. But because there are no firm guidelines on how exactly TIN masking would be handled, it’s impossible to say how much extra time and effort it would take you to comply. But the rules would most likely apply to Forms W-2, 1099, 1098 and 5498.

IRPAC made several suggestions for IRS to include when developing TIN masking guidance for companies, including the following requirements:

1. Working with state agencies, the Social Security Administration, taxpayers and Accounting pros to define criteria for when masking would apply and how it would be handled.
2. Educating the general public about what TIN masking would mean to them, and how they can ensure accuracy of their forms and the tax returns they file using those forms.
3. Looking for other ways to prevent identity theft.

Do you think it’s time to start TIN masking– or is it not worth the effort? Are there other trouble spots that leave companies and/or their workers vulnerable to fraud? Sound off in the comments.

Here are five situations A/P and Payroll folks see just infrequently enough to make them tricky. Test yourself — or your co-workers — to see how well they know the ins and outs of IRS’ regs. Answers below, courtesy of the American Institute of Professional Bookkeepers.

1. An employee passed away during the year, and your company paid death benefits — but not under a plan. Those benefits are reported on Form ________.
2. One of your independent contractors is paid $1,000 per contracted job, plus any substantiated expenses for which he submits receipts. On the 1099-MISC, you should include the total of all payments and expenses. True or False.
3. A new employee insists he can use his W-2 as IRS notification of a change of address. True or False?
4. Last year, your company gave every employee a fruit basket (valued at $25) for the holidays. This year, everyone got a $25 gift card to the local grocery store instead. Both gifts are treated the same way for tax purposes.
5. Once a year, your company hosts a holiday party for employees. You don’t have to treat that as taxable income. True or False?

Answers & explanations

1. Form 1099-R
2. False. Substantiated, reimbursed expenses aren’t considered income and shouldn’t be included on the 1099.
3. False.
4. False. A gift card is considered a cash equivalent. Any gift of cash — or a cash equivalent — is taxable.
5. True.

The wrong date was printed in the 2008 General Instructions for filing 1099s, 1098s, etc. The real deadline is Feb. 15. The affected forms are:

• 1099-B (Proceeds from Broker and Barter Exchange Transactions)
• 1099-S (proceeds from Real Estate Transactions), and
• 1099-MISC (Miscellaneous Income). For the 1099-MISC, the 2/15 date applies only if any substitute payments in lieu of dividends and tax-exempt interest, or payments to attorneys are reported on the form. Otherwise, the usual deadlines apply.

IRS just revised Publication 1179 “General Rules and Specifications for Substitute Forms 1096, 1098, 1099, 5498, W2-G and 1042-S.” It lists the most recent requirements for acceptable substitute forms as well as instructions for filing.

Download the publication here.