Governmental Entities

 Important Topics:
1099 Information Returns - UPDATED!
Red Flags Rule

1099 Information Returns - UPDATED!
Businesses (as well as non-profit organizations and governmental units) are required to file Form 1099 information returns for various payments made throughout the year. These forms are to be used to report payments to individuals and partnerships paid by you as follows:

Please note that as a business owner, you are responsible for filing various information returns with the Internal Revenue Service, including Form 1099s, in addition to normal income and payroll tax returns. We can assist you in the preparation of these returns. To assist in your information gathering, we have provided a 1099 information spreadsheet that you can download and complete by clicking here.

Form W-9 should be completed by all payees prior to making any payments that would require a 1099 form. Failure to file the forms and failure to provide account numbers are each subject to significant penalties per failure. For businesses located in Pennsylvania, 1099 forms are to be filed with the Internal Revenue Service Center, Austin, TX 73301.

NOTE: On the recipient’s copies, you are required to include the telephone number of a person to contact in case of questions. It is recommended that the contact phone number be included in the section with the filer’s name and address.

PLEASE NOTE:  In March 2010, the Patient Protection and Affordable Care Act changed the 1099 reporting requirements so that all payments made by persons engaged in trade or business in excess of $600 (including those in exchange for property) were reportable payments beginning after December 31, 2011.  In addition, the Small Business Jobs Act added a provision to 1099 reporting that included all taxpayers who receive rental income into the reporting requirements beginning after December 31, 2010.  On April 14, 2011, the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 was signed into law and effectively REPEALED both prior 1099 reporting changes.  All 1099 reporting requirements will continue as if both prior Acts had not been enacted.

Red Flags Rule
The Federal Trade Commission (FTC) has issued regulations regarding fraud and identity theft prevention. Known as the "Red Flags Rule," the Fair and Accurate Credit Transactions (FACT) Act of 2003 requires all entities that extend credit to consumers to develop and officially adopt an "Identity Theft Prevention Program" by November 1, 2008. However, due to confusion over the regulation's definition of "creditor," this deadline has been postponed by the FTC until December 31, 2010.

According to the recently enacted "Red Flag Program Clarification Act of 2010," the term "creditor" refers to an entity "that regularly and in the ordinary course of business:

• obtains or uses consumer reports, directly or indirectly, in connection with a credit transaction,
• furnishes information to consumer reporting agencies in connection with a credit transaction, or
• advances funds to or on behalf of a person, based on an obligation of the person to repay the funds or repayable from specific property pledged by or on behalf of the person."

The 2010 Act specifically excludes from the definition of "creditor" any entity that "advances funds on behalf of a person for expenses incidental to a service provided by the creditor to that person." Also, the Act states that an agency having authority over an entity may require the entity to follow the Red Flags Rule if the entity "offers or maintains accounts that are subject to a reasonably foreseeable risk of identity theft." Please note, accepting credit cards as a form of payment does NOT meet the definition of "credit" as established by the FTC or the 2010 Act. Furthermore, the 2010 Act was designed to exclude most doctors, lawyers, accountants, health professionals, and many small businesses from being subjected to the Red Flags Rule requirements.

Please note, if your entity is still classified as a creditor after taking the 2010 Act into consideration, your Identity Theft Prevention Program must be written and formally adopted by your board of directors, shareholders, or partners by the December 31, 2010 compliance deadline. If you have not developed a plan already, please do so immediately.

For more information about the Red Flags Rule and compliance guidelines, please visit the official Red Flags Rule website. The FTC has provided this informational pamphlet, a Getting Red Flags Ready video and a Do-It-Yourself template for Low-Risk Businesses.  Additionally, you may also want to review this compliance model distributed by the National Rural Water Association.  This model was specifically designed for water utility providers, but can be adapted for almost any business model and industry.

If you have any questions regarding the Red Flags Rule or what they mean to you, please contact our office at (717) 336-3801.