Tax Talk: W9's with Jeffrey Cronin

Welcome to Accountants Law Pod, where accounting professionals and law firms converge. Hosted by Linda Artesani, Sarah Prevost, and Steven Libhart.

Welcome back to the podcast, everyone. And this week we actually lured Jeff Cronin back in and we're calling it Tax Talk: 1099s and W-9s with Jeff Cronin. So welcome back. We really enjoyed our last conversation. I can't believe we were able to talk about 1099s for so long. And now we're going to go into the W-9 side of it as well. Uh, probably going to be one of our most popular shows, I'm guessing, only because it's just such a gnarly topic. I don't know the way to describe it.

Gnarly is a good word.

So welcome back. And if you want to just give the audience that maybe didn't go to the first one a little background on you.

Yeah, thanks, Linda. Um, so my name is Jeff Cronin. I'm the Chief Strategy Officer, whatever that title means, at a company called Zenwork. We, uh, we're We have a product called Tax 1099, which is our largest product, a couple other products on identity management and, and KYB stuff under the Compliance Lead brand name. You might know us, but, you know, I've, I've been in the tax information reporting universe now for somehow managed to be over 20 years doing specifically things 1099 related. And I'm really happy to be here and talk a bit about you know, the, the W-9, you know, how do you— when do you need one? Why do you need one? When do you use a W-8 would be a conversation we might want to talk about. And, uh, you know, just sort of talk a little bit about the, the problems they can get you out of is really what the W-8 and W-9 serve.

And maybe how we can— maybe how we can impress upon our clients to embrace them and understand how important they are.

Yeah. flow too. I mean, you gotta— you have to educate your, your client why they should be collecting these now. And usually that conversation comes up in January when we're like, where are they? Especially if it's a new client, like, well, where are your W-9s? Well, what's W-9? So you might want to just start from there. And maybe, um, there are probably people listening that don't know what a W-9 is, I'm guessing.

That's a good point. Um, yeah, when you, when you look at what a W-9 is, the purpose Purpose of W-9 is for you to collect documentation on the identity of the person you're paying for tax purposes. The W-9 frankly serves one primary purpose, which is to save you from being required to withhold on payments to that entity. The IRS wants their money one way or the other. You as the payer, which is the IRS term for what you are if you're giving money to somebody, you as the payer. are required to collect information on who you're paying. This is separate from KYC regulations and all of the stuff you can do on, you know, on, you know, Office of Foreign Asset Controls and, you know, a whole series of checks you should also be doing to know that you're not paying somebody who's otherwise restricted. We can talk about that too if you'd like to. But when you, when you're, for just from a tax standpoint, you're required to collect information to verify the tax identity of the individual. You are not required for it to be correct. You're required to make the attempt. You can file 1099s, you can actually collect and pay people and file 1099s if you have no Social Security or no tax ID for that payer, for that recipient as a payer. But if you do that and you knowingly don't have proper tax identities for the people you're paying, you're obliged to withhold 29% of all payments and remit that to the IRS.

So can I ask a quick question here?

Yeah.

I've always been under the impression that you had— I always use the word fully completed W-9. That's what I— the verbiage I use with our clients. And what I'm hearing is, is if they don't check the box that says they're an LLC or whatever and they don't fill out their tax ID, we're okay because we can prove that we had at least made an attempt to get it from them. Or—

In the situation where you made an attempt and they refused to comply and you do not have A tax ID in hand, you're obligated as a payer, and therefore now you're, now you're classified as a withholding agent. You're, you're now required to withhold on all payments made to that vendor or that person you're paying, that recipient.

Well, that's a great tool to get them to do it right then.

So it is. Lots of people get very angry, angry when you short pay them the first time and say, why'd you hold back 30% of my money? And the answer is, well, you didn't give me your W-9, and I, I'm I'm a— and I don't have a tax ID for you, so I'm obliged to withhold.

That's a smart idea.

Yeah, just thinking, do you have that code snippet we could have somewhere to go, here's the rules?

Well, there's that CP-21 notice or something. What's it?

CP-2100 and CP-2100A. I'm happy to talk about B notices too. That's what the— that's what we in this— we call those B notices.

Yeah, yeah.

And the B is for backup withholding.

Yeah.

When you submit a 1099 to the IRS and it has either a missing or incorrect Name and TIN combination, you then they fall into the B notice regime. Now, first of all, you get that's an automatic penalty. The IRS will assess a penalty for every one of those. If you have a W-9 on hand and can prove that the person signed the paperwork under penalty of perjury, and it matches the record you transmitted, the IRS will waive will abate that. Well, they'll waive that penalty. So you did what you reasonably could. You got a W-9. They signed it. The fact that they lied to you about their tax ID is not your fault. they'll take the penalty away. But it does mean that all subsequent payments to that same person must then be withheld on. That's why, that's why the 2100 is called the B notice. It's the notification that you must backup withhold on the following payments to the following future individuals unless you can remedy by obtaining a signed W-9. And by the way, in the tax code, this is the only time you need a W-9. You don't need a W-9 for before first payment. You don't need a W-9 when onboarding someone. You need to get a tax ID and a name. If you have a tax ID and a name and they incorrectly gave it to you and you get it, you'll— you can have to pay the penalty because you don't have a W-9 on file. But even then, when you get the CP2100, you have a 60-day window to mail a W-9 and attempt to solicit one, and they'll waive the penalty if you solicit for them as well.

Should they backdate the date on it?

Never backdate a date. Okay.

Steve.

Yeah, I'm being devil's advocate here.

Okay. I'm sorry.

Well, that's a good—

well, that's a good question. I mean, people, yeah, I'm sure they think that way. So, but you have the burden of proof to show that you have a copy of what— or what was provided. Like, let's say you've documented, you've called, you've emailed, you've mailed, you've sent links to secure one with no nothing to come. But these people, like, they've already paid. Like, you're doing it in January for prior year. And your client has already paid.

Yeah.

What then?

At that point though, yeah, if you've not done your proper diligence prior to payment. So the, the, where people get in trouble with this is you get somebody that you're working with, you onboard, you onboard a PI, that PI is getting paid for work, for hourly work or for work as they go on through the course of the year. And then they come to January and you don't have any tax identity information for that PI. You call 'em, they don't answer. You send 'em an email, they don't answer. You send 'em a mail, you send mail to them, they don't answer. Yeah. At that point, your obligation is, you know, if the IRS were to want to really hold your feet to the fire, they could hold the payer, the law firm, responsible for, for, for, for that 29% withholding that should have happened. In the cases where it's intentional disregard, that's the penalty. That's the scope of the problem. If you intentionally choose not to do this, Yeah. then the IRS can come back and say, fine, we don't really care. Just give us our 29%.

It kind of goes back to— I mean, really, for us, it's important to impress upon— we really do need the W-9 before first payment because it's really hard to collect their—

It's so hard to chase later. So hard.

Yeah, you got their attention then. So it's the best time to try to get it from them.

It's become the gold standard for onboarding for most people. It's just like, you know, W-9 is part of the package. Yeah, to be clear, you know, you can't require it by the tax code before paying people. But if they don't, if they refuse to give you their tax ID, you can withhold on them. That's your— that's actually the stick we get as a payer is withholding.

Do you have to get a new one every year?

You do not have to get a new one every year.

Whew.

So some, some of these forms expire. Other W-9s used to expire a long time ago, but they don't expire anymore. The, if they have an entity change, so like if it's a W-9 on a business or a person that, you know, if they have a name change or if they have a tax ID change, is which, that those things would need to be documented. The biggest problem is that name-TIN combination is what the IRS is looking for, not just a tax ID. And to be frank, the IRS's matching algorithm's kind of weak. It's only the first, I think it's 8 characters of the TIN, of the name that gets matched against the tax ID.

And so that's why you get those funky letters sometimes. You're like, gosh, the letters are always funny. Yeah, got it.

Okay. If it's a— if it's an individual, it's the last name they match against. You have to pull out some special characters like, you know, apostrophes can't be included. But that you're— when you file your 1099s with an electronic filing vendor, they have to strip those out too. So—

Oh, they do? Okay.

Yeah, we— when we do— we do 1099s, if somebody sends us over a data file and said, oh, here's Bill O'Connor, And we paid him $1,700. We have to pull that apostrophe out of O'Connor in the process of sending it to the IRS because the IRS systems can't parse them.

Okay.

So it should, you know, that should be fixed for you before you get to this point. But it is right, Sarah, to your point, you get these weird names on your CP2100 file. And I would guess for most law firms, they're getting a paper letter with a list of people they're supposed to be chasing down. The CP2100A, the IRS still ships you a CD-ROM.

Really?

Oh my gosh.

I don't have one of those to even look at. Like, I haven't bought one.

That is crazy.

Put that in.

Yeah, this is, this is the reason those of us in the 1099 universe have one of these, these portable USB ones in our, hidden in our desk somewhere so that we can deal with it. Oh my goodness. Good gracious.

That's crazy.

Yeah, there's some state— yeah, so yeah, so they'll— the 2100-A is if you've got more than 250 of them, they send you an electronic file as opposed to a paper notice. And, you know, that's probably not applicable to most of this audience. That's the kind of stuff you get at, you know, you know, big depository banks or, you know, somebody who's doing a lot more high-volume business will get the—

Do you have an idea? Do you have an idea how much money the IRS is losing every year In this, this arena?

So how much of the tax gap is attributable to bad tax IDs?

Yeah.

So we can do an entire episode on the tax gap. So, right. So the IRS estimates the amount of unpaid taxes under current tax law every year. The majority of the tax gap is attributed— attributable to, you know, basically nonpayment of taxes that were not covered by information reporting. Yeah, when you look at the failure on tax IDs, it's not substantial. It's less than 1% of—

Okay.

Income reported to the IRS doesn't have an associated valid tax ID. So it's not a, it's not a big money problem to the IRS. But from the IRS's standpoint, the big important thing here is that the, the Information Reporting Program boosts, we talked about this last time, the voluntary compliance, right? We live in a voluntary tax system. Voluntary compliance of correctly reporting income goes up to over 90% if there's, if there's third-party reporting.

If there's no third-party reporting, it's Under 40%.

And, you know, that's the— and so they want to make sure they maintain the integrity of that third-party reporting system, and this is one of the tools for that.

Interesting.

Yeah, it is fascinating, you know. And a lot of this for us, it just comes down to workflow and trying to make sure that our clients follow the procedures. And a lot of times we're really scrambling, and we, we kind of work, you know, Sarah and I kind of work with— if it's a new client, we try to get on that right away. But if it's somebody who just picked up in January, And they've never heard of it. I've never heard of a 1099. Believe it or not, that has happened. We have to go back in the steps and start to look at it. And we tell them, look, you're at the end of the line because you're not even prepared. You don't know what it is. You didn't get your W-9s and other things you have to get. I think I'm thinking as you're saying this, like, I have a client that's a contractor and they got to get the W-9. But then if they didn't get the W-9, they also have to get the workers' comp insurance that has to be during the time that the person works. And it just becomes an even bigger complex mess for them.

Yeah.

Because all that has to fall into place.

It's just so many.

This is It's just all compliance stuff. And I think it's stuff that we don't really get compensated well enough for. We don't make money off of it. So it kind of makes us grumpy about it, I think. I don't know, Steve. Do you think so, Sarah?

I think you're right. Yeah, you kind of resent it.

We resent it because nobody takes the ownership of how important it is other than us. That part's definitely part of it. And then they don't really like, ah, you know, and then you tell them we charge for it because if they get a lot of them, I mean, personal injury, They can have a lot of those forms going out. What do I need to send them out to this, this, and that one for? And then you get in a discussion about that. And it's something I guess we should really be talking about throughout the year with our clients. Obviously can't do anything about a new client coming in in January, but having that dialogue with the client as we go through the year is the best thing to do. What do you think, Sarah?

I have a question because we— I find it, you know, you've got the NEC and you got the miscellaneous. And understanding the differences, of course we do. But there are some tricky moments to understand the relationship of what necessarily needs to fall on one or the other. And it's hard to understand because referral income is separate from consulting income. And consulting income also is challenging when you've got a physician, like in the PI space, you've got a physician and then you've got either It's a consulting on a case, or is it actual performance of work? Like, where— but it clearly states, and this is where I feel like the areas of 1099, even with the best of tax people, there's— it's even very challenging in enrolled agents and CPAs and so forth where things really land, because it's an interpretation of what you're hearing.

That is so true.

Isn't it? Yeah. And then what you're putting on there. And so And then I do want to circle back at some point in the conversation about the W-8 and sort of the guidance around that. But I don't know, Jeff, it is like, I feel like because we're— it is an underpaid space and we do the best we can, it is also hard for us to know succinctly in our hearts and minds, like, are we actually getting the right form out the door to these people?

Yeah.

Based on what we can see in the books.

Yeah, the, you're right. And it's the reason it's, I mean, we talked a little bit offline before we started about the Tax Preparation Reporting Conference I went to. Like there's an entire 3-day conference on just 1099-related issues. And if you look at the Big 4, they each have 1099 specialist practices. And there are a couple of actually individual accountants and lawyers that I know that are, that are sole proprietors and they run just advisory services on 1099s. Now, you know, it doesn't— the problem is for most of us in this audience, right, we're, we're dealing with, with tens or hundreds of them a year. And, you know, to, to be frank, um, we're, we're not going to get a lot of attention from the IRS at that kind of volume given their work, their constrained staffing. And so best efforts are usually sufficient for people like us who are saying, hey, I did 10, I made it at best effort, I reported it, I may have put it on the wrong form. You may want to need to penalize me when you tell me to report it on it. It wasn't supposed to be on miscellaneous. It was supposed to be on NEC. I may have to pay the correction penalty for fixing that, but that would be the scope of my obligation. As long as I attempted in good faith, the IRS is pretty reasonable about this stuff. It's like, hey, you tried, you did what you thought you were supposed to do, you got it wrong. So I'm going to, you know, I'm going to slap your wrist. Here's a $65 penalty. Fix it. And that's, you know, in, in our universe, that's about how that would work. Whereas, you know, if you go to the larger, you know, the larger entities who are doing, you know, hundreds of thousands of these, yeah, that doesn't quite work that way. I mean, one of the big rideshare companies that I used to work with reported everything on 2 forms.

On 2 forms?

Yeah, everything got reported twice for every driver. Because there was a— there was conflict over understanding whether or not the— well, at the time, you know, the miscellaneous before the NECs went out when they were doing this.

Yeah.

Whether it would be reported on miscellaneous or needed to be reported on a K, because the K was new. If you remember, 1099-K is for payment intermediaries. And all these rideshare and gig economy services act as both a payment gateway as well as an employer or the employer of the contractor for the gig economy worker. And so they were saying, hey, safest for us to do everything twice because, you know, then we're definitely covered.

Well, then how does the IRS know it's not duplicate revenue? Because that's also been a conflict. I go down these rabbit holes. Sorry, but I'm just like, this has happened.

Yeah. And this is— it really does happen. So the IRS in that situation, you know, the taxpayer then has to report both and they have to show that the income was reported in 2 places. And we're not— we should— again, we could have a whole conversation about the K, which this audience may not care about, about the fact that it reports things in crazy ways.

Yeah.

But yes, the IRS will— again, the taxpayer can correct that information in the process of doing their, you know, actually doing their tax return itself, right? So the IRS will say, hey, we see that you've got $1,100 in 1099-K. and you've got, you know, $900 on a miscellaneous and that's, you're reconciling that back out from the same payer, it's the same income. The reason there's a difference is because Ks don't take out fees and other things that do get taken out when you report them on a miscellaneous or an NEC.

So there are conferences just on this. It blows my brain. I mean, it makes sense that the larger entities have these departments that support that like it would with payroll and all of that. That makes sense. And when you're in that small business market, that's not the case because it's a department of 1 or 2 or half the advisement of this. Or my friend down the street said you didn't have to do this. I'm like, has your friend been through these before?

So, so, Jeff, we, you know, the, the IRS— correct me if I'm wrong, but the IRS is already looking at attorneys and landlords under a microscope. Per se.

If you have a box on a form with your industry's name on it, you're going to— you're under a microscope.

So help me out. I'm an attorney client of yours. How are you going to— and I say to you, I'm just not going to do it. I've never been caught before. We have these scenarios. I've never been caught before. I don't care. I'll take the hit if I take the hit. How do you sell that to them?

One, please never say that out loud. So you've just dumped intentional disregard on my— in my lap. And when I get sued, I'm going to have to tell them, no, you told me you knew you were supposed to do it and were just choosing not to.

I like that. Okay.

Under the regulations, if it's intentional disregard, there is zero cap on penalties.

Wow.

Oh, ow, ow, ow. That right there.

Can you— That's the big thing. If you know you're supposed to do it, try.

Yeah.

Even if you do it wrong, at least now you've capped your penalty risk.

Wow.

But if you don't know you're supposed to do it, you're— so again, right, that's the intentional part of intentional disregard. If you intentionally disregard, all penalty caps are gone. So I've seen, you know, you've— I've seen assessed penalties in, in the 7 and 8-figure range, range, not including backup withholding obligations.

Dang.

And so, Yeah, you don't want to be in intentional disregard.

And if you, if you file, if you figure out that you were supposed to do it but you're late in filing, still file.

Correct, because you're there. If you look at the filing, at the penalties for late filing, right? So there's the penalty regimes for failure to file, intentional disregard, and are sort of, they accumulate. So you've got your initial filing deadline. And if you miss your initial filing deadline, you've got 60 days and then the penalty, and it's a 60— this is indexed to inflation. So the current number is like $63, but it'll go up.

Okay.

So, you know, the— so, so that your, your initial penalty tranche is $60-some-odd per form that you failed to file on time. That's your, that's your late filing penalty. And then if you wait for 120 days, you sort of go get into August. Well, your next, it goes up again, it doubles, and then it climbs, it climbs up the ladder the later you go. Where, and even those get capped out. I think their current cap is $500 a form. I'd have to go look up the penalty structure. I never, we never let anybody get that far out. And so, you know, when you look at your late filing penalties, the IRS will, will accept late filings for up to 3 years.

Mm-hmm. Oh.

And so if you— and that's another thing to talk to your customers about. It's like, hey, when you do finally start doing this, you need to go back 3 years and do all of it. Because unless you want an auditor to show up and knock on your door, and nobody wants the IRS to show up and knock on their door.

Now, is there a company out there that would handle this for you, like doing it, the work?

Well, we'll do all the filing for you.

Yes. But would you go and get all the W-9s and the heavy lift? Do you know of any company that just says, we handle Your 1099s.

Yeah. So W-9 solicitation is just part of the— there's several suppliers like ourselves that will do W-9 solicitations. And we'll do— we'll collect W-9s. We'll identify those people who never respond. It's obviously the easiest way to do that is on— sorry, electronically if you've got email addresses, but you can do paper solicitations as well. So yeah, there are options out there. The paper processing option is expensive. And frankly, you know what I would say? You know, I'm gonna shoot myself right now. If you've got 10 of these or 20 of these, don't hire me. I'm too expensive.

It doesn't, it doesn't make sense.

Yeah, that makes sense. That, no, that's a fair thing to say. But some people are willing to pay certain price points just because of the fear.

Yeah.

It's gotten into them. But I do feel, um, it makes more sense for us to be more intentional about 1099s as a separate service if we're going to offer it. And as we— most, most of us do here in present company, it's a separate offering. It is not— it's not something I'm going to do every year unless you've engaged it either. So—

I would also recommend that when you guys onboard a firm, review their onboarding, their vendor onboarding package, and include the W-9 in there.

That's a great suggestion. That's like best.

Yeah, I mean, it's just like, you know, hey, you have, you have a package of things you need to go through. And, you know, frankly, we, we sort of hand, hand waved it a second ago. You should do the sanction screening checks in that onboarding package too.

Mm-hmm.

Right? So whether it's, you know, Secretary of State sanctions, there's a death, there's a death master file lookup to see whether or not the person, they, the information they provided you is for a deceased person, which happens occasionally.

Why?

Why? Because if you want income that's not going to get reported to the IRS and you can walk away with without paying tax, just give them your dead uncle's Social Security number and name.

I don't even think that way. I didn't.

Okay.

I know, right?

That's so terrible. We see it. And also trust accounts too. Like, sorry, like, I had somebody ask me because like you're paying a rent to a trust.

Yeah.

Is it reportable? I'm like, well, it's still rent.

Yeah.

I can't control the end product of where it goes. Which is where I feel like if I waved my magic wand, I'm like, could we just simplify the process and just like everyone's required? And but I don't understand how you do that.

Yeah. Yeah. And you'll get a conversation, a lot of conversations about, well, I don't think I'm going to pay this guy $600, so I don't want to collect.

Oh, yeah. Oh, yeah, you're right.

Yes.

Yeah.

He's like, it's great that you don't think you're going to, but if you do, you're going to wish you had it. And so, you know, and a lot of times people will do things like they'll try to put it, you know, just to avoid it. It's like, well, I'll get a W-9 as soon as I'm going to pay them over $600. And again, right now, yeah, just—

Or I've never sent one to this person. I'm not going to do it now.

Excellent. But wait till that person starts asking you because they want validation. So the ones that I find the vendors that I find that are most in line is because they're looking to validate because they don't want their revenue misreported. Are you going to eventually report the wrong revenue? Because the question becomes, is it reimbursable expenses or not? And especially in the gig economy, are you— what are you capturing in my 1099 to me? So I feel like that's a valid question for some people. But then you mentioned earlier about the W-8. Can you speak to that a little bit for us?

Yeah.

So if you've got anybody that you're working with that's a non-US person, they're not, they're not a US taxpayer and you're making payments to that individual, that information's not reported on a 1099. It's reported on a form called a 1042-S. And the documentation you need to collect to verify the status of an individual, the equivalent of a W-9 for a non-US person is called a W-8. It's called W-8BEN actually for beneficial owner. And there's a ben beneficial ben dash e for entities that you're paying that are non U.S. entities that are beneficial that that are benefiting from the payment. First, if you're paying a non U.S. person, you're obliged to withhold 100% of the time unless you can document that the individual is covered under a specific tax treaty, and there's 70 some odd tax treaties that determine the withholding rate. for different income types, for different payment types to a non-US entity or person.

How do we, how do we communicate this? Oh my gosh. How do we, how do we navigate that?

Yeah. So believe it or not, there's a 2-day conference in New York this June only on 1042-S and W-8s.

Wow.

So the IRS audit handbook has had 1042 or non-US, non-resident payment activity in the audit handbook going back a decade now. So, uh, in the IRS—

by—

if, if, you know, if you want to be a real tax nerd, you can get the IRS's audit handbook. They publish it every year and see what their audit criteria are, what they tell their auditors go look for when they go into an audit. And, uh, non-resident payments has been in there for over a decade because pretty much nobody does it right to start with. And the tax treaty structure is a mess. It's hard— well, I sound like it's a mess. It's difficult to understand. I mean, it's their tax treaties. Every country negotiated a treaty that said you withhold these kind of payments at this rate and other kind of payments at other rates because, you know, nobody from the UK wants to file a US tax return. But if you've received US source income, you may have to file a US tax return to get that money back or to, you know, to properly document your request for the funds back. Yeah, I mean, the W-9 and W-8 go hand in hand. If it's a, if it's a, if it's a US person, you know, W-9, and that's a pretty easy form. W-8, Pretty easy form, but then you have to make sure you— and it's got a whole set of tables in the back says, here's where— here's all the tax treaty rates for everybody and go and look and see what rate you have to withhold on based on the kind of income and what this person's documented their nationality was.

So if a client— and I've seen this— hires somebody in Costa Rica, let's say, as a contractor, they're going to have to send that W-8 and there's going to be on the back of it's going to say what the treaty is with Costa Rica. Is that what I'm hearing?

There's a treaty rate, there's a separate publication for treaty rates because there's so many of them. But yes, the instructions for the W-8 has— have a— there is a treaty rate, there are treaty rate tables in there. And the, the person in Costa Rica they hired, they're going to document that they're from Costa Rica, that they have no US tax identity, and they're not, they're not a US filer. And they'll send the paperwork back. And then when you make payments to that person in Costa Rica, Depending on what you're paying them for and the associated treaty table, you withhold a different amount and remit it to the IRS.

Wow.

Wow.

I know. Makes you just sit here and say, I, I want to run away. I'm all done.

I'm just going to go to work at Dairy Queen.

No, no, no.

That, that universe gets a little worse in a couple of states too. So California has a non-resident withholding requirement for non-US persons.

It's always California. It's always California.

Or Massachusetts, to be fair. Or Massachusetts.

It's like the states people are moving out of.

Does the form cause cancer in California? That's the important thing.

Yes, exactly.

Like Skittles, right, Steve? You see that they don't make Skittles there anymore, man. You know, it's funny.

You would think— This is just amazing that That, you know, I can guarantee you 99.9% of our clients don't even know this.

Yeah.

No, it's the reason— again, this is the reason it's in the audit manual, right? Nobody knows this. It's not— and let's— you know, the IRS sees about 800,000 nonresident tax filings a year in the whole country.

That's all?

That's— well, they think they should see more, but yes, that's what they actually get.

In today's world, there is probably more. Yeah. You know, you think about it, it, it should be something— of course, after you just, you know, you showed us that this— they get you something on a DVD player. I'm not gonna— or a CD player. Obviously, the government's far behind technology to get it to a space. I mean, you keep hearing stories about them being hacked and all of that because they're just so antiquated. And I know that will require money to update, but it really needs to be updated. I mean, in this world, we need high levels of security. This is a lot of data that the government holds on to. And the fact that we— this global world we live in, how much money is the U.S. government missing out on because they don't have a system in place to gather this and require this before when the person gets paid? Because it's going to be— they got to be being ripped off by any taxpayers that are outside of the country. Because I bet a lot of people go, I don't live there, I'm not going to file a return. Or I just can't imagine that people are following those rules.

Or with that said, that's, that's a great point, Linda. And with, you know, to jump onto that, Point. You hear in the news how the IRS have recently decided to hire a bunch more people. What sort of impact is that going to have on things like this? I mean, that's really true, Linda, what you just said. I mean, what can you tell us about that, Jeff, from, from the information you've learned at these conferences? I mean, does the IRS come and tell you what they're going to do? You know.

Generally, yes.

Okay.

The IRS is pretty clear about their intentions. Like I said, they publish their audit manual every year. And so they, they outline what they're, what, you know, that's a really good guideline into what they think are the areas that they have opportunities to find things in. When you look what the IRS has proposed, you know, there, there's a lot of arguments politically around what the audit enforcement regime is going to look like. So if you, when the IRS, the, the recent expansion of funding the IRS was going to go to 2 things. Linda, the first, the thing you mentioned, technology. The IRS knows they have a technological gap that they need to address, but they don't have the money to fix it because Congress—

And they have, they have to get that money from Congress, right?

Correct.

Right. And they, they just spend the whole time fighting with each other. So we're not going to get anywhere there.

There, there, there was a substantial increase in IRS funding that went— that's good— that about, about a third of it's going to tech and about two-thirds of it's going to enforcement. Frankly speaking, the IRS has seen anywhere between 4 to 1 or 3 to 1 for return on investment for enforcement spending. Spend a dollar on enforcement, you get $3 or $4 back.

That's been their historical— Interesting.

Okay.

You know, we could, you know, this is part of it's that, you know, they, they do try to target low-hanging fruit because there's, they just don't have enough manpower to, to audit everybody. You know, that's the way they look at their enforcement spend. For them, it's, for them, it's an investment in with a return at this point. And that's been the argument they've been making to Congress for a long time.

Easy money.

Sure.

But you, we've been around long enough that we know, we've seen it and it's definitely shifted. It's shifted since like, I don't know, the '90s or something. It's, it's It's definitely less than when we first started working, that you— it was not uncommon to hear about an audit, and now it's just—

Well, they target— there's a target too that they've listed. They, they've also disclosed what they're after. And I think, I think that was— I don't know if— I don't know through Congress if that was part of like some of the decision-making, but definitely there's certain criteria of middle class that they're not looking to hit. They've exhausted this, this dying section, um, under a certain dollar value. So—

And they used to, they used to go after everybody. It was pretty equal. And then they shifted their mindset, which I understand. Most of the time though, the more money somebody's got, they've got ways around the rules that they do it legally, and they figure out strategies to get away from it, where it's still probably more— it probably might be more beneficial to go after the middle class for that, but that would not be what would not sit well politically.

Well, they— I, I don't think it's that. I think you need to look at the departments that are strategically aligned to, say, find the loopholes.

Well, that's the thing. The loopholes are legal, you know, they're legal loopholes, but then they, they should be fixing that too, right?

So that's the error. That's the error.

Because you have corporations that do have, you know, that don't pay much compared to us, right? So yeah.

Oh, equal rights.

Again, you blew our mind.

I know. It's like, I'm like, should I go get the audit manual and read it?

I mean— And, you know, Sarah will go with you at any of these conferences because she loves a good 1099. Look at her.

I wrote you and said, I was like, totally blank. Like, we need to revamp this. And I'm thinking, what do I need to study now? Because I'm the one that sits and reads.

She does.

Through it and reads and, and says, okay, based on what my understanding is, based on what I'm hearing and seeing, this is the best form for this, or this is where we need to put this. But I can't go too far. I mean, I can't exhaust all my efforts either. I gotta succinctly move on. But yeah, it's, it's not a fun place to be in.

It's not a fun topic.

Collect your W-9s and your W-8BENs, please, please, please, please.

Yep.

Use Keeper. It's easy.

Use Keeper. Stick it in your onboarding document, onboarding package, and then, you know, you'll be done with it.

Yeah.

Keeper makes it easy.

And again, it makes it very easy. And I'll repeat, if you have one in hand and it's wrong, you're covered as the payer. That's the smart thing to do. And that's the big thing, right? You may have to deal with something later, but if you have one in hand, And you send stuff to the IRS, the IRS tells you it was wrong, say, I've got the paper, I have the documentary evidence that says I did this. You're protected as, as the actual, you know, in the, as the firm. So, you know, that's, it's important to just at least get something.

Yeah. Well, gosh, thank you so much for your time today and sharing your, I mean, of course you're always welcome. You got something to share with us, you just jump on. We don't have to get— we don't have to have a topic.

Yes, Jeff. Any little thing changes, let us know. Hear from you.

Look at how, like, forward you got into your mic too. You're like, I just—

I absolutely will. You know, and this has been fun. I really appreciate it. I appreciate you guys having me again. And last time it was fun, and this time it's fun.

Thank you.

To support the Accountants Law Pod, please take a moment to like, share, and review this episode, and be sure to subscribe to this podcast on YouTube and wherever you find your favorite podcasts. If you have questions, topic requests, or guest suggestions, you can email us at info@accountantslawpod.com or send us a message through our website, accountantslawpod.com. To sign up and join us in the Accountants Law Lab, which meets every Friday, Visit our website at accountantslawlab.com to sign up, and to learn more about Jeff Cronin and Zenwork, follow the links in the show notes below.

Thank you. Bye-bye.

Thank you, everybody. Thank you, Jeff.