The CP2100 (or CP2100A for the second notice) is sent to businesses that filed information returns (1099s) with incorrect Taxpayer Identification Numbers. The IRS compared the names and TINs on your 1099s against their records and found mismatches. You're now required to take specific actions or face liability for backup withholding you should have collected.
What You Must Do
For each mismatched payee, you must send a B-notice to the payee requesting a corrected W-9 with the correct name and TIN. You must begin backup withholding at 24% on future payments to that payee if they don't provide a corrected W-9 within the specified timeframe. You must also file corrected information returns with the IRS.
The first B-notice (triggered by CP2100) gives the payee a reasonable time to respond with a corrected W-9. If the payee doesn't respond and you receive a CP2100A (second B-notice) for the same payee, you must begin backup withholding immediately and the payee must verify their TIN directly with the IRS or SSA.
The Liability Risk
If you don't comply with B-notice requirements, you become liable for the backup withholding you should have collected. That means the IRS can assess 24% of all payments made to the non-compliant payee against your business, even though you didn't actually withhold the money. For a contractor you paid $100,000, that's $24,000 in liability.
Common Causes
TIN mismatches happen when payees provide incorrect Social Security numbers or EINs on their W-9, when names change due to marriage or legal name changes, when business entities change their legal name without updating their TIN, or when transcription errors occur during data entry.
Prevention
Use the IRS TIN Matching program to verify TINs before filing your information returns. Collect W-9s from all payees before making the first payment. Update W-9s whenever a payee's name or business structure changes. These steps prevent B-notices and the compliance headaches that come with them.
If you've received a CP2100 or CP2100A, call us at (813) 229-7100. We can help you comply with the B-notice requirements and avoid backup withholding liability.