Q. (cont.) We sent out 1099s for 2013 with just the last four digits of the social security number. When I contacted the IRS, I spoke with Mr. Hall, agent #1002444893, explaining I had received Notice CP-2100 - Error in Submission. Mr. Hall stated that as long as we have a W-9 for them there was no need to do anything further. Now they want us to pay $7,600 in penalties. Help, please!
A. Notice 972CG is a notice of proposed penalties, and you have the opportunity to ask the IRS to abate the penalties. While we do not quite understand the details that have led to a CP-2100 and now a proposed penalty, if you think you should not be penalized as proposed, you can ask for an abatement. You do this by writing a letter within 45 days of the notice. If you can show that you had reasonable cause rather than willful neglect to do whatever they are penalizing you for, you may get the penalty abated.
Have a look at Responding to a 972CG Penalty Notice, which lists what your letter needs to include and provides a sample response letter for an example of wording.
Explain what you did and why, and cite your conversation with Mr. Hall (good that you documented his ID number) in response to the CP-2100. The IRS is supposed to honor what its representatives tell you, though we’ve not tested that ourselves.
With regard to truncating SSNs on the 1099s, did you file them with the IRS that way? You are allowed to used shortened SSNs (with “X” replacing the first 5 digits) on the 1099 that goes to the payee; but you still have to include the entire SSN on the 1099 that goes to the IRS (see Shortened TINs Help Fight Identity Fraud). Having said that, if that’s why you received the CP-2100s, and you subsequently were told my Mr. Hall that as long as you had the W-9s you did not need to take further action, that’s the case we would make.
If the above does describe your situation, it does seem that you would also need to issue corrected 1099s to the IRS with the full SSNs on them. In any case, we understand that reasonable requests for abatements have a good chance of success.
We trust this answers your question.