Q. (cont.) ... to land owners for easement type payments or for survey permits. The checks are not issued out of AP. How we currently handle W-9s for payments is we have a repository system that they get scanned into and "attached" to that specific vendor number. Since the ROW checks are not run through AP, they are not given a vendor number. The agents are still obtaining the W-9s from the land owners, but we are not sure what to do with them. If after we TIN-match it and know it's good, and 1099-report on that payment, is there an audit period where we should keep a copy of their W-9s? Right now the paper copy is kept in a file drawer. We are trying to reduce paper and would like direction as to what to do with the W-9s.
A. Per Judy Bicking, our practitioner expert:
I'm assuming the scanned W-9s in the repository system are for vendors paid through AP, and the paper W-9s for the ROW are being filed in a drawer.
For any payees who are paid both out of AP and from the ROW system for combined amounts of $600 or more, you would need to merge the two files to accurately prepare and file the 1099s.
You may need to produce the W-9s if there is ever a question regarding the payment. I have heard of cases where years after the TIN match, the TIN no longer matches and the W-9 was needed to prove it was in fact provided by the payee. At J&J, we would keep the W-9s for the life of the business relationship, and would maintain it along with the seven to 10 years of data we kept as supporting documentation for the invoices.
I would suggest that in either case (over or under $600), the W-9s for ROW be scanned into the AP system and you use the tax ID as the index field since there is not a vendor number. A second index could be "ROW," so you know AP didn't make the payments. This should be a field that you can sort on so that ROWs can be retrieved and reported separately from AP's W-9s. Scanning all W-9s would eliminate the paper W-9, cost of storage, misfiling and potentially any privacy law issues. I'm sure you're thinking that means more work for AP, but you should be able to provide the ROW staff with a scanner and the rights to index their work.