1099 Tax Software Blog

How can I efile replacements?

One frequently asked question is “I put together a new file, there are 0 potential errors, I click Transmit and I see..”

and the Replacement option is grayed out.  The software can not automatically transmit a replacement like it would an original or correction because you have to find the file in the IRS FIRE System that you want to replace.  To do this:

1. Create a new fire.txt file and double check that there are no errors.

2. Log into fire.irs.gov:

and click Continue to go to the Main Menu or click Main Menu to the left.

3. At the Main Menu Options, click on Send Information Returns which is to the left.

4. Type in your TCC and EIN for the transmitter.

5. Verify your transmitter information and click Accept.

6. You will be asked to choose a file type. Here you can select Original, Correction or Replacement.  Select Replacement.

7. You will see a list of files needing replacement.  There may be only one file to replace. Select the file you want to replace.

If you uploaded many originals that came back as “Bad” and you only want to replace one of them, then you need to call the IRS and ask them to delete the other “Bad” originals.

8. Type in your PIN.

9. Click on Choose File and find the replacement file and then click Upload.

What is a replacement file?

A replacement is a new original file.  If you submit a file to the IRS and it comes back as “Bad“, then the file does not exist in the IRS FIRE System.  You want to replace the bad file with a new original file. You can replace an original or correction and you get credit for the date/time in which you submitted the original bad file.  If you submitted the original file on or before a due date, you can submit a replacement within 30 days and its still considered on time.

30 days to file a replacement

Something was wrong with the file that you submitted.  To find out exactly what errors as associated with the file that you submitted, log into the IRS FIRE System and go to the Main Menu and click on Check File Status.  Find your file and click on it and the IRS will show you the errors associated with your file.

1099FIRE Service Bureau

We efile on your behalf.  We do charge for that service.  Just call sales at (480) 460-9311 to get started.

A replacement arises when you electronically submit a file to the IRS and the file comes back as “Bad”.  You put together a new file to replace the bad file that was originally uploaded.

A correction arises when you electronically submit something to the IRS and the file comes back as “Good”. Then later (maybe days, maybe weeks, maybe months) after you have efiled you realize that you transmitted payee data that was erroneous.   You need to paper file or electronically file information returns that correct just the records that were erroneous.

A few comments before we lay out the steps to efiling corrections.

1. You can only electronically correct payee or recipient data.  The IRS says in Publication 1220 “[i]f an error is discovered in reporting the payer (not recipient) name and/or TIN, the payer should write a letter to the IRS” which explains the payer error in detail.  They also provide a mailing address to where you can mail these types of corrections.
2. If the file status is “Good, Not Released”, then you have a 10-day window where you can call the IRS and ask them to delete the file before it is released.  You call the IRS at 866-455-7438 x3 and provide your TCC number and the file name and while you are on the phone the IRS agent can delete that file.  You can then Check File Status to verify that the file is deleted.  If the file is deleted in time, you can then efile a new original and this time make sure there are no errors in the file.
3. If you transmitted a file of 100 records and one (1) of the records has erroneous data, then you put together a correction for just this one record and not resubmit the entire file.
4. The payer/filer must furnish corrected information returns to the recipient.  You don’t have to re-mail to the recipient but you can if you want to.  You can print out and hand a corrected Copy B to the recipient, fax or email a corrected Copy B to the recipient or just let the recipient know what the change is.

If the file status is “Good, Not Released”, then you have a 10-day time-frame where you can call the IRS and ask them to delete the file before it is released.  The IRS phone number is 1-866-455-7438 x3 and you provide your TCC number and the file name and the IRS can pinpoint the file and delete it.  If the file status is “Good, Released”, then you need to efile a correction.

There are 2 types of corrections:  1-step and 2-step correction.

A 1-step correction generally arises when you are correcting a money amount or if the information return should have not been efiled (in which case you are voiding the transaction).  Put together:

• A file with just the records you are trying to correct
• Put a check in the corrected box
• Use the correct money amount or use 0 if you are trying to void a transaction).
• Transmit as a correction.

The software will automatically update the 1096 (or transmittal summary).

A 2-step correction typically arises when you are correcting a name/TIN of the recipient.  You need to put together 2-files of just the records that you are trying to correct.  The first file has the original incorrect payee name and/or TIN that you transmitted, the money amounts set to 0 and the corrected box checked.  This first step essentially voids the original transaction.  The second file has the correct payee name/TIN, the correct money amounts, and the corrected box checked.  You then upload both the 1st and 2nd step as corrections.

We can efile corrections on your behalf.  We do charge for that service. Just email us at info@1099fire.com or call our sales office at (480) 460-9311 and they can get you started.

An original file is data that has never been transmitted to the IRS before.  The steps to efiling are below:

1. Import in your data and then click “File Information Returns Electronically”.
2. Fill out all of the fields on this screen and hit the Save button so you dont have to fill it out again.
3. Click Create.  If the software show 0 potential errors, you can efile by clicking on Transmit.

And that’s it.  You can also manually upload the file by going to the site fire.irs.gov and log in and click on Send Information Returns.  There you will have the option to upload the fire.txt file that the software created.

You uploaded a file through the IRS FIRE System and it came back as BAD.  You need to submit a replacement.  In the 1099FIRE software, there is an option to transmit Originals and Corrections but Replacement is grayed out?  Why?  And how do I transmit a replacement file?

Replacement files require one extra step and that is you have find the file you want to replace.  The software can’t find it; only the end-user can. That is why the 1099FIRE software doesn’t have the option to submit replacements.  So to efile replacements, you have to manually log into the IRS FIRE System and upload them.  The steps are here:

1.  Create a new fire.txt file and double check to make sure this file looks good.  If the software says there are ‘0 potential errors’, then its most likely ready to efile.

2. Go to the site fire.irs.gov and log in.  Go to the main menu and click on Send Information Returns.

3. Follow those screens.  The first screen asks to the TCC and EIN.  The next screen asks you to verify your information.  The third screen asks you whether this is an original, correction or replacement.  Select Replacement.  The IRS site then asks what file do you want to replace.  There is probably one file listed and you select that file.  Then you enter your PIN and you get to the screen to browse to find your file.

4. When you hit Create in the 1099FIRE software, the software created a fire.txt file on the C: drive, FIRE folder, 1099 subfolder.  Find that fire.txt file and upload it.

That’s it.  Wait 2-4 days for the results to come back.

Form 1099-R is an informational form used by financial institutions to report distributions of more than $10 to account holders from a variety of sources including:

• Pensions and annuities
• Profit sharing and retirement plans
• IRA’s
• Insurance contracts

Most of these distributions are from some type of retirement plan or fund, and there are differences in the tax treatment of these plans.  For many retirees, distributions are mandatory after a certain age, and these amounts will need to be reported on Form 1040 as taxable income.  The amounts listed on 1099-R are for inclusion on one’s income tax form, and the form is submitted to the IRS with a copy to the taxpayer.

The reason they are taxable is that most amounts placed in an IRA or retirement plan are deductible from income for that year, and will now be subject to tax upon withdrawal in the current tax year.  There are exceptions such as withdrawals from a qualified Roth IRA, so it is important to get sound tax advice on the tax ability of distributions.

Form 1099-R resembles other 1099 forms on the left hand side with boxes for the payer, recipient, addresses and tax identification numbers.  There is also a space for the recipient’s account number.

On the right hand side the important and most frequently used boxes include

Box 1 contains the Gross Distribution before withholding or taxes, and Box 2 lists the amount that is taxable.  If the distribution was a rollover to another account then this amount would be zero.

Box 4 contains the amount of federal income tax withheld by the payer.

Box 7 lists the distribution code for the type of distribution, such as normal, early, death, disability and Roth payments.  There is also a check box for any distributions that are IRA/SEP or SIMPLE plans.

Boxes 12-17 are for reporting state and local income taxes.

It is important to check the accuracy of the distribution amounts on form 1099-R since they may be taxable for the recipient.

Taxpayers who have any type of debt cancellation or forgiveness will have to report that amount as taxable income.  The lender will file this form if there was more than $600 worth of cancelled debt for the tax year.  There are a few instances where this type of debt cancellation can occur, including:

• A negotiated settlement of a debt that is for less than the original amount owed. This can occur frequently where debt negotiation is used as a substitute for bankruptcy.  However, the tax on the cancelled portion of the debt can be significant where debts are negotiated for a small percentage of the original loan.
• Non-payment of a debt for at least 3 years and no collection attempts for 12 months. This seems to operate as a “passive cancellation” if the creditor has given up collection efforts.
• A home in foreclosure there is a deficiency that the homeowner does not have to pay

The only way to avoid paying taxes on these amounts is if you can show that you are insolvent (debts exceed assets) or you have a mortgage forgiven that is covered by a legal exclusion.  Also, debts that are dissolved in bankruptcy don’t have to be claimed as income, and the creditor should not issue a 1099-C.

The form itself is fairly simple among the 1099 informational forms.  The left hand side of the form has boxes for both creditor and debtor information, including name, addresses and tax identification numbers.  The right hand side has the following boxes:

Box 1 :  Date of the identifiable event e.g. when the debt was cancelled.

Box 2 :  Amount of the cancelled debt

Box 3 :  If interest was included in the cancelled amount, then it would be listed here

Box 4 :  Description of the original debt such as credit card, mortgage, etc

Box 5 :  Contains a checkbox for the situation where the debtor was personally liable for repayment of the debt

Box 6 : The code for the identifiable event (reason the debt was cancelled such as debt relief, foreclosure, etc.)

Box 7 : Fair market value of property such as real estate to determine deficiency and calculate amounts forgiven.

Not every Form 1099 submitted to the IRS is correct, and there are many types of errors that can creep into this form, especially if you issue many 1099s each year.  There are different processes for correcting and amending a 1099, depending on whether you are a recipient or the one who filed the incorrect form.  Form 1099 may be filed by paper or electronically.

Steps for Recipients of an Incorrect Form 1099

Most 1099s deal with independent contractor income, using Form 1099-MISC.  If you receive multiple 1099s there is a chance of errors, so the first step is to check the 1099 as soon as your receive it against your own records.  Since February 2^nd is the deadline in 2015 to receive a 1099, you will have at least a month until the issuer must submit the form to the IRS on March 2^nd , or even later on March 31^st for those who file electronically.  Of course, some issuers may send both at the same time, but if you check the form as soon as you receive it you should be able to contact them in time to have a new, correct form sent to you.

Even if the form has been sent to the IRS, you can request a “corrected” form from the issuer.  The “corrected” box will inform the IRS that this is a new version of the one already sent.  If the issuer wont send you a new form, then you will have to handle the incorrect form yourself, and explain the discrepancy or mistake to the IRS in an attached statement.

Steps for Issuers of an Incorrect 1099

The steps for correcting a 1099 that you may have issued depend on the type of error.  The most common type of error will be incorrect money amounts listed on the form, and in this case the remedy is to simply prepare a new 1099 with the box marked “corrected”.   Correct the information and file the new form.  This is the same process to use if the name or address were entered incorrectly.

Forms that have errors in recipient tax identification numbers, or incorrect name AND address have a slightly different process for correction.  You first prepare a new 1099 marked “corrected” with the exact same information as the original return, but enter zero for payment amount.  This alerts the IRS that there was a problem.  Then prepare a new form with the correct information and submit it as though it is an original, without marking the “corrected” box.  This identifies the second form as the correct version for the IRS.

One of the most frequent uses of Form 1099-MISC is to report payments for services to non-employees or independent contractors.  Those payments are listed in box 7 of the 1099-MISC for annual amounts of $600 or more.  It is the payer who makes this determination of the work relationship, and there are tests the IRS uses to classify employees vs. independent contractor.  The most important of these is that the IRS presumes that work performed is part of an employee relationship, and the payer may have to demonstrate why they are treating the worker as an independent contractor.

Employee vs. Independent Contractor Relationships

According to the IRS instructions for 1099-MISC, the basic tests used to define the employee relationship center around behavioral control, financial control and relationship of the parties.  Behavioral control means that a worker receives extensive instructions on how to perform the work, as well as specific training.  Financial control is determined by the worker’s own investment in the work, and the potential to realize a profit or loss.  In other words, if their services are part of a broader work scheme that they own and operate, then they may be contractors and not employees.  Finally, the relationship between the parties may be ultimately determined by the nature of the contract that is used, and evidence of control and employee status contained in the contract terms.

The Process of Determining Status

Form SS-8 is used by workers who request to have their work status determined by the IRS, if the worker feels that they are actually in an employment relationship.  Some workers may feel unfairly excluded from the employee status, and the benefits that go along with it.  The form has many questions that pertain to the issues of control and the nature of the work relationship, and as mentioned the business has to overcome the presumption that the worker is an employee.

The advantage for a business in paying independent contractors is that they can avoid paying the employer portion of Medicaid and social security for the worker.  If the worker is self-employed, they pay the entire amount as self-employment tax.  Also, independent contractors are not entitled to any benefits such as health or disability insurance, so a business can realize savings in this area as well.

However the IRS does scrutinize this relationship and will make a determination either on its own as part of an audit or at the request of the worker.  Any business that claims workers are independent contractors would be well served to have a personal services contract that clearly defines the relationship.

Individuals or business entities who borrow money from a lender whether it be a lending institution for the purchase of a property may be required by the lending entity to secure the loan by the property being purchased. Should an individual then go ahead to transfer an interest in the secured property to the lending entity as the case would be in a foreclosure, or should an individual abandon the property, he or she may be required to treat the transfer or the abandonment as an actual sale of the property in question. Should the lending entity acquire an interest in the secured property or have a reason to know that you abandoned the property, the lending entity is required to send you a Form 1099-A for the acquisition or the abandonment of a secured property.

When an individual borrows money, he or she is not required to include the proceeds of the loan in gross income. This is because the borrower has an inherent obligation to repay the lender at a later date. Should that obligation be cancelled, the borrower is required to include this cancelled debt in gross income. When a commercial lender cancels a debt, the lending body will disburse a Form1099-C with regard to the cancellation of debt. This is the official method of reporting the debt cancellation.

The form 1099-A reports the principal amount owed to the lender as well as the fair market value of the property secured. This is then used by the debtor in determining whether there is a gain or loss in the property disposition. The form 1099-C reports the cancelled debt by the lender. The Form 1099-C may be used singly, if the interest of the lender in the secured debt or the abandonment of the property by the debtor as well as the cancellation of the debt all happen within the same calendar year. Should the borrower receive Form 1099-C or Form 1099-A with incorrect information, one should contact the lender in order for him to make the necessary corrections. Failure to do this could lead to penalties being imposed on your for providing the incorrect information or you could end up being short changed in the long run.

There are some circumstances that may call for the cancellation of debt income wholly or partially.  One such case is whereby you have a debt income cancellation on ones principal residence. Here one may be allowed to exclude the whole amount or part of the amount that is cancelled from your income. This is provided for expressly in the Mortgage Forgiveness Debt Relief Act of 2007.

The federal government has an interest in making sure people sock away money for retirement, so many contributions you make to certain individual retirement arrangement (IRA) accounts are tax-deductible until you finally pull that money out once you are in your seventies.  Of course, there is a limit on how much you can deduct every year, but it can add up to a pretty tidy deduction, and when it comes to your tax bill, every bit helps.

If you are saving for retirement (and you should be, no matter what age you are) there are some things you need to know about IRS Form 5498.

1. It’s not your responsibility to file it with the government.  Whoever acts as the trustee or the IRA issuer is required by law to file this form with the IRS.  If you receive a copy from them, it’s only for your files.
2. Rolling over or converting assets from a different retirement plan into an IRA isn’t tax deductible.  However, they are still treated as “contributions” by the IRS, so they go in a separate box on the form.  However, there are other rules covering special cases like rollovers between traditional IRAs and specialized accounts like SEP IRAs and Roth IRAs.  Check with the administrator of your plan if you have questions.
3. If you are married or have two retirement plans, you might not be able to get the full deduction.  If you have a tax-advantaged retirement account aside from your IRA, or your spouse is also contributing to their own IRA, you may bump up against the maximum contribution amount set by the IRS.
4. You can deduct current-year contributions from prior-year tax returns.  This is a great thing – if a little confusing.  Essentially, you can claim all of your contributions from 2014 on your 2013 tax return through April 15th.  This is why you may not receive a copy of your form 5498 from your plan administrator until May 31st, the legal deadline.
5. You can’t deduct contributions to Roth IRAs, SIMPLE IRAs or SEP plans.  There are a variety of reasons for this, most of them involving the time at which you pay the taxes (Uncle Sam will always get his money, no matter what) but if you are not contributing to a traditional IRA, you can’t deduct your contributions on a tax return.

There you have them – five facts everyone needs to know about IRS Form 5498.  If it’s all still a whirlwind, don’t worry – there is help available.  You can use specialized software to help with your Form 5498 from a website like 1099fire.com, which also has a bunch of other services available no matter what form or part of your taxes you are struggling with.  It is always better to be safe than sorry when it comes to the IRS – so if you have questions or are unsure about anything, don’t hesitate to seek out professional help!