Will the IRS kick out mismatch for 1099-NEC issued to a single member LLC (electing S Corp) using LLC EIN and owner's name/address if LLC is not named on 2nd name line?

[scarlott.cagle]

Owner address and LLC address are same. Want to know if LLC name must be on the 1099 in name/address section also, and if so, should issuing company reissue to avoid a mismatch?

[sjrcpa]

I wouldn't bother trying to get 1099 corrected. Your client didn't give them correct info.

If your client still does work for the payor, they need to give payor a W-9 indicating they are an S Corp.

For 2021, put 1099-NEC on a Sch C, then have an equal expense called: Amount reported by ABC LLC EIN 12-3456789

[BobKamman]

Why would it be necessary to play Trick The Computer here, if the 1099 has the EIN for the entity that should be reporting the income?  IRS doesn't match names, it matches EIN's to returns.  And it knows that EIN belongs to an S Corp.  If anything, IRS will send a letter to the payor, telling them that the EIN and name don't match.  So yes, notify the payor of the problem, to correct it for next year.  

[sjrcpa]

Thanks Bob. I agree. I got confused about whose ID number was on the 1099.

[qbteachmt]

"should issuing company reissue to avoid a mismatch"

The point is, S Corps do not typically receive a 1099-NEC at all. There are a few professions that might, but the purpose of the W9 is to inform everyone what applies. Your client not only needs to use that form, they need to understand what "operating as an S Corp" means, include how to properly sign papers, payroll, etc. You might have a lot to cover with them.

[scarlott.cagle]

Thanks.

Client sent me copy of the W-9. Box 1 has owner's name, Box 2 has LLC name, Box 3 has the Individual/Sole Proprietor/single member LLC box checked and TIN is the LLC EIN. Form is dated 2/17/2020. For 2020, she had all Sch C income, so W-9 okay. For 2021, a new tax preparer (not me) has advised her to elect S Corp status for her 2021 income. (I question if that is possible given he recommended it in October 2021 for 2021 income, but that's probably another post.)

Anyway, regarding name/EIN mismatch potential, am I understanding correctly that she does not need this payor to reissue the 2021 1099-NEC with the LLC name included on 2nd line in the name section as long as the EIN is correct? 

But, if she does consulting work for that payor again, (this year or in future), she should submit a new W-9 with all same info listed above EXCEPT the S Corp box should be checked (not the individual/SP/single member LLC box)? 

Also, full disclosure - I'm a CFP(r) practitioner/ EA who does very simple individual tax returns (and I have never done hers). Husband has been "self-preparing." I advised her to find a CPA/EA who could prepare her return now that her situation has gotten more complicated (e.g., LLC, vacation rental home, oil/gas income), but the new CPA has not been responsive to client's (or my) questions unfortunately, so I appreciate all feedback. 

Thanks in advance,

S

[TaxGuyBill]

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@scarlott.cagle wrote:

Anyway, regarding name/EIN mismatch potential, am I understanding correctly that she does not need this payor to reissue the 2021 1099-NEC with the LLC name included on 2nd line in the name section as long as the EIN is correct? 

But, if she does consulting work for that payor again, (this year or in future), she should submit a new W-9 with all same info listed above EXCEPT the S Corp box should be checked (not the individual/SP/single member LLC box)? 

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The EIN should match with the name on Line 1.  As a disregarded entity, that would be the individual's person's name and their ID number (either an EIN in their personal name or their Social Security Number).

Did she actually make the election to be taxed as a S-corporation?  If so, wouldn't she check the Limited Liability Company box, and then write "S"?

[qbteachmt]

"she should submit a new W-9 with all same info listed above EXCEPT the S Corp box should be checked (not the individual/SP/single member LLC box)?"

None of the Above. You mark that it is an S Corp, and an S Corp is Exempt from 1099-NEC reporting. You enter the Corporate name and FEIN.

Box 1 Corp.

Box 3 LLC as S Corp.

That's part of why I commented: need to understand what "operating as an S Corp" means, include how to properly sign papers, payroll, etc.

"I question if that is possible given he recommended it in October 2021 for 2021 income"

Do some due diligence; ask for the IRS letter accepting that there is an S Corp, and the document showing there was an FEIN issued.

Who has been running payroll for this person's corporation since 2021? And if that wasn't even formed until Oct, was it applied for retroactively, or is the first 3/4 of 2021 not as the S Corp?

[scarlott.cagle]

EIN matches the owner's name on Line 1, so looks like that's okay. I was interpreting instructions literally -- Here's an excerpt from General Form 1099 instructions:

For a single-member LLC (including a foreign LLC with a U.S. owner) that is disregarded as an entity separate from its owner under Regulations section 301.7701-3, enter the owner's name only on the first name line and the LLC's name on the second name line. For the TIN, enter the owner's SSN (or EIN, if applicable). If the LLC is taxed as a corporation, partnership, etc., enter the entity's EIN.

Payor did not enter LLC's name on second name line. If that's not an issue, I won't ask my client to have payor reissue.

I don't believe she has elected S Corp status yet but has done 2021 one-time/single payroll as if she has following her CPA's guidance. New CPA told me (in 10/2021) he would elect S Corp status when he files her taxes for 2021, but unless an exception applies, I didn't think she could do that. I thought she would need to file as LLC/Sch C for 2021 income and then, beginning in 2022, she could elect S Corp status, pay herself reasonable salary, run payroll, etc. to reduce S/E taxes. 

Regarding which box to check, I reviewed it again and agree LLC box should be checked with "S" filled in once that election is made for all future W-9s. 

Thanks.

[TaxGuyBill]

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@scarlott.cagle wrote:

EIN matches the owner's name on Line 1, so looks like that's okay.

I don't believe she has elected S Corp status yet but has done 2021 one-time/single payroll as if she has following her CPA's guidance. New CPA told me (in 10/2021) he would elect S Corp status when he files her taxes for 2021, but unless an exception applies, I didn't think she could do that. I thought she would need to file as LLC/Sch C for 2021 income and then, beginning in 2022, she could elect S Corp status, pay herself reasonable salary, run payroll, etc. to reduce S/E taxes. 

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In your prior post you said "and TIN is the LLC EIN".  It should NOT be the EIN of the LLC; it should be the EIN of the individual person.

You are correct, that a late S-election is only valid if the taxpayer had intended to be taxed as a S-corporation at the beginning of the year, and that would include being on payroll.

[scarlott.cagle]

@qbteachmt  wrote:

"None of the Above. You mark that it is an S Corp, and an S Corp is Exempt from 1099-NEC reporting. You enter the Corporate name and FEIN.

Box 1 Corp.

Box 3 LLC as S Corp.

That's part of why I commented: need to understand what "operating as an S Corp" means, include how to properly sign papers, payroll, etc."

Thank you. I read the fine print under the LLC box and I now understand why that would not apply.

I don't know if there is an IRS letter accepting that there is an S Corp. but I suspect not. I have seen the IRS FEIN letter for the LLC. Would there be a new letter issued after IRS accepted there was an S Corp or will same LLC FEIN still apply?  

No one has been running payroll for 2021. Client found new CPA in Oct 2021 (friend of husband's) and CPA advised client to sign up with ADP and run her own (single person) payroll in Dec 2021 to save on SE taxes. It's been very "informal" from what I can tell. 

To your point about the client understanding what it means to have an S Corp, I totally agree. I suspect the CPA has not covered it with her. 

Thanks again for your feedback. It's much appreciated.  

[scarlott.cagle]

@TaxGuyBill wrote: 

"It should NOT be the EIN of the LLC; it should be the EIN of the individual person."

All checks were made payable to the LLC under the LLC's EIN. Since checks were not paid to her personally, I'm confused as to why the EIN would need to be the EIN of the individual person. She has no other EIN (aside from the single-member LLC EIN) except for her own SSN.

[TaxGuyBill]

Because that is the the Instructions say for the W-9.

The EIN of a disregarded LLC is ONLY used for employment taxes (employees) and excise taxes.  For income tax purposes, you use the EIN or SSN of the owner.

[qbteachmt]

"and CPA advised client to sign up with ADP and run her own (single person) payroll in Dec 2021 to save on SE taxes. It's been very "informal" from what I can tell."

So now we know that anything from/regarding that CPA cannot be relied on. That is Basically a bad statement. You cannot pay yourself through Payroll from your own LLC. You have no SE taxes as an employee of the S Corp. That is confusing two different provisions, and payroll is a basic, fundamental, thing for a CPA to know. And no one "saves" on SE taxes. They become Employer + Employee taxes; they are shifted, not saved.

"I don't believe she has elected S Corp status yet but has done 2021 one-time/single payroll as if she has following her CPA's guidance. New CPA told me (in 10/2021) he would elect S Corp status when he files her taxes for 2021, but unless an exception applies, I didn't think she could do that"

I thought you were filing her taxes.

Well, here we are at the End of Feb 2022:

To elect an S-corporation taxation entity for your business, you must submit IRS Form 2553. This must take place no more than two months and 15 days after the tax year that you want this change to go into effect

What a mess.

Perhaps you should unwind 2021 payroll, file for S Corp election for 2022, and start payroll for 2022?

[scarlott.cagle]

Thanks for the clarification.

S

[scarlott.cagle]

"To elect an S-corporation taxation entity for your business, you must submit IRS Form 2553. This must take place no more than two months and 15 days after the tax year that you want this change to go into effect.

What a mess."

Your point above is exactly what I mentioned to the CPA from the first time we ever spoke and he said he would elect it when he filed her taxes so it wasn't an issue.

This forum has help me realize that what I suspected was true; this guy they chose doesn't follow the rules (whether by ignorance or intention) and, in any case, neither I nor my clients need to be associated with him. 

We are searching for a new tax preparer (CPA and/or EA) now. I know it's an awful time of year for it, but it's time to move on.

What a mess, indeed. 

Thanks again for your time and help. 

S

[qbteachmt]

Here is a helpful article:

https://turbotax.intuit.com/tax-tips/small-business-taxes/can-i-convert-my-llc-to-an-s-corp-when-fil...