We are writing up procedures on when a Form W-9 is mandatory when first setting up our vendors in our AP system. We would like your advice...

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Q. (cont.) To elaborate—we obtain Form W-9s from 95% of our vendors, but do make some exceptions. In order to know if these “exceptions” are valid from an IRS standpoint, do you know of a publication/instructions that elaborates on what payment types absolutely require a Form W-9, and those type of payments that do not (i.e., payments to government agency)? Or, is the IRS guidance simply always collect a Form W-9, no exceptions?

A. The key word here is “mandatory.” You may want a company policy that mandates W-9s in most instances. However, from an IRS perspective (we might have said this before), a W-9 is not mandatory unless you receive a B-notice from the IRS.  Reporting is mandatory on payments depending on payee, type of payment and amount.  Backup withholding is mandatory if you do not have a Tax Identification Number. But the IRS does not require you to collect a W-9.

So you do better focusing on what the IRS does require (i.e., the rules for reporting and backup withholding), then determining your policy based on that. The exceptions to 1099-MISC reporting are listed in the IRS Instructions for Form 1099-MISC on page 2. You might decide that if a vendor falls into one of those exceptions you don’t want to collect a W-9, but be careful, because in some cases, the W-9 is useful evidence that the vendor is in that exception category (e.g., some non-profits).

Consultants such as Marianne Couch of Cokala encourage payers to get a W-9 from virtually everyone as policy.  You might exclude requests to governments and their agencies. They are not likely to send you a W-9—they don’t need to and generally they know it.  Beyond that, it’s a matter of company policy based on your understanding of your 1099 reporting responsibilities.

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