Cloudy with a chance of 1099

Copyright © 2018, Oracle and/or its affiliates. All rights reserved. |
How Oracle Cloud ERP makes 1099 reporting easier
Mahesh Vallampati
Cloud ERP Consulting Manager
North America Consulting
North America Applications
October 25, 2018
Cloudy with a chance of 1099

Agenda
1099 Background
Supplier Setup
Transaction Flow
Reporting Setup
1099 Reporting
IRS Timelines and Services
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Agenda
Non-AP 1099 Payments and Data Merge
1099 Document and Supplier File Preparation
Conversion Consideration
Other Consideration
Conclusions
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Program Agenda
1099 Background
Supplier Setup
Transaction Flow
Reporting Setup
1099 Reporting
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1099 Process Summary
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1099 Process Flow
Documentand
FilePrep
1099TeamPayablesTeam
SupplierSetup
Team
Supplier
Start
Fills out W-9 Form
and sends it to
Supplier Setup
Team
Supplier Setup
Team Sets it up
and verifies with
IRS
IRS TIN Check
Process
TIN Error?
Serve B-Notice to
Supplier
Put Supplier on
hold until TIN Error
is resolved
If Critical Supplier.
Setup Withholding
tax at 28 percent
Supplier fills out
Amended w-9
Form
Yes
Yes
Setup Vendor as
Spend Authorized
with correct MISC
Code
No
Payable Team
Creates Invoices
Distribution
Information
Reviewed for
MISC correctness
and applicability
Run 1099 Supplier
Exception Report
Run 1099 Invoice
Exception Report
Resolve Issues
Setup Reporting
Entities
Merge Non-
Payables 1099
data
Create Mailings to
Suppliers
E-file with IRS
E-file with state
agencies or send
listing
End

1099 Background
• What is 1099?
– 1099 is non-employee compensation paid to suppliers for services that are
reportable to the Internal Revenue Service and the supplier
– Does not include payments made to corporations
– Amounts more than $600 have to be reported
– The schedule is a the Fiscal calendar year (Jan-Dec)
• IRS definition from IRS.gov
– Report payments made in the course of a trade or business to a person who is not
an employee or to an unincorporated business.
– Report payments of $10 or more in gross royalties or $600 or more in rents or
compensation. Report payment information to the IRS and the person or business
that received the payment.

Program Agenda
1099 Background
Supplier Setup
Transaction Flow
Reporting Setup
1099 Reporting
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1099 Supplier Level Setup
Field Meaning
Tax Payer Country Usually the United States, although other countries have similar
requirements
Tax Payer Id The id issued by the regulatory authority which in the case of the
United States is the IRS
Federal Reportable That the supplier is 1099 reportable to the IRS
Federal Income Tax
Type
The type of 1099 income. There are several categories with
MISC7 being the most common
State Reportable Some states need a copy of the 1099 reported to the IRS which
would be the state of the suppliers 1099 reportable address
Tax Reporting Name The name of the entity which would appear on the 1099 report
Name Control Typically the first four characters of the tax reporting entity name

1099 Supplier Site Level Setup

1099 Supplier Site Level Setup
• Income Tax Reporting Site
– A supplier can have many sites
– But only site can be an Income Tax Reporting Site
– If more than one site is designated is an Income Tax reporting site, then the
exception report lists it as an exception
– The address associated with the site is where the 1099 form will be mailed
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Program Agenda
1099 Background
Supplier Setup
Transaction Flow
Reporting Setup
1099 Reporting
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Transaction Flow
• Payable Invoices
– 1099 Information like MISC category is stored in the Invoice Distribution of the line
– It is important that the correct MISC category is set up at the supplier level and also
used at the distribution level
– There are two fields at the Invoice Distribution which are grouped as Income Tax
• Income Tax Type  This is defaulted from the Supplier setup  Federal Income Tax Type
• Income Tax  Region  This is the state of the Supplier site address
• Payments that count towards 1099
– A payment made to a 1099 suppliers for Invoices that have 1099 distribution amounts
– The payment status may be outstanding or cleared
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1099 Data in Invoice Distributions
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Program Agenda
1099 Background
Supplier Setup
Transaction Flow
Reporting Setup
1099 Reporting
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Transaction Flow
• When entering invoices, care should be taken to differentiate the following
– Services rendered which are 1099 income
– Pass through billing like expense reports that are not 1099 income
– We recommend requesting suppliers to send separate invoices for 1099 income and
non-1099 pass through billing
• The system allows certain distributions to have a 1099 type specified and
some set to empty
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Program Agenda
1099 Background
Supplier Setup
Transaction Flow
Reporting Setup
1099 Reporting
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Manage Tax Reporting and Withholding Tax Options
• This is a setup at the Business Unit Level
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Manage Reporting Entities
• Reporting Entities that file 1099 have two levels
– Header Level
• Business Entity
• Location
• Name of the Reporting Unit that files the 1099 on behalf of the corporation
• Tax-payer-id of the 1099 filing entity which is provided by the IRS as an identifier
– Detail Level
• Balancing Segments of Invoice Distributions that have 1099 income recorded against the invoices
• In environments, where balancing segments are added, care should be taken to add the balancing
segment to the 1099 reporting entity for completeness
• Else the 1099 income reported against that balancing segment will not be recorded causing
discrepancies
• FSM task: Manage Reporting Entities
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• This is a setup at the Business Unit Level

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Manage Transaction Calendars
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Click on Create Calendar
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Program Agenda
1099 Background
Supplier Setup
Transaction Flow
Reporting Setup
1099 Reporting
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1099 Reporting
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• Oracle provides several 1099 reports
– Exception Reports
– 1099 Reports

1099 Exception Reporting
Report Report Description
US 1099 Supplier
Exceptions Report
Lists suppliers with inaccurate or
incomplete United States 1099 income
tax information.
US 1099 Invoice
Exceptions Report
Lists paid invoice distributions with
inaccurate or missing United States 1099
income tax information.
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1099 Reports
US 1099 Electronic
Media Report
Generates summarized 1099 information
in electronic format as required by the
United States Internal Revenue Service.
US 1099 Forms Report
(Comma Delimited
Format)
Reports the total United States 1099
miscellaneous tax type payments for
1099 suppliers in a comma delimited
format.
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1099 Reports
US 1099 Report Reports the total United States 1099
miscellaneous payments for a particular 1099
supplier and generates 1099 forms for each tax
reporting entity in an organization.
US 1099 Payments Report Lists payments made to United States 1099
reportable suppliers.
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Program Agenda
1099 Background
Supplier Setup
Transaction Flow
Reporting Setup
1099 Reporting
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IRS Timelines
• Starting 2017, IRS now requires electronic upload to the IRS and a paper
copy to the suppliers by January 31
• An extension will have to be filed
• The last date is March 31st if filing a deadline
• The next slide indicates the deadlines
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1099-MISC IRS Timelines
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IRS Services
• TIN Check/Match
– IRS provides a service where a corporation can upload the names and tax identifiers
and IRS provides feedback on the quality of the data.
– TIN Matching is part of a suite of Internet based pre-filing e-services that allows
“authorized payers” the opportunity to match 1099 payee information against IRS
records prior to filing information returns.
– Objective of TIN Check/Match are
• match the payee name and TIN with IRS records;
• decrease backup withholding and penalty notices; and
• reduce the error rate in TIN validation.
– The link for TIN Check/Match is here
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IRS Services – TIN Check
• IRS TIN Check report
• *** IRS Tin/Name Matching Report ***
1/31/2012 10:35:35 AM
Filename: T18097.txt
Total Records Received from IRS: 1480
Total Error Codes 1, 2, 3, 4, 5 received from IRS: 261
Error Percent: 17.6351
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Tin Name Sequence Code
-------------------------------------------------------------------------
Code 2: Tin never issued. Typed incorrectly by mistake or fake (Count=9)
-------------------------------------------------------------------------
Error
Tin Name Sequence Code
-------------------------------------------------------------------------
Code 3: Tin and name do not match IRS records. (Count=252)
-------------------------------------------------------------------------
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• -------------------------------------------------------------------------
• Code 1 or 4, Invalid data: The following were dropped, not sent to the IRS
• -------------------------------------------------------------------------
• -------------------------------------------------------------------------
• Code 5 Duplicates: The following were dropped and not sent to the IRS
• -------------------------------------------------------------------------
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• Original Record Count = 1516
• Drop Count Code 1 and 4 = 25
• Duplicate Count Code 5 = 11
• Codes returned by the IRS are:
• 1=Invalid TIN, other than 9 digits, all zeros, etc.
• 2=Incorrect Tin. It was never issued by the SSA or IRS.
• 3=NO MATCH. Name/TIN Combination does nat match IRS Records
• 4=Invalid input, i. e. special characters
• 5=Duplicate input, same as a previous record.
• 6=Match on the SSN database (NAP DM1).
• 7=Match on the EIN database (EIN N/C).
• 8=Match on both EIN and SSN databases.
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1099 Data Quality
• We recommend TIN Check once a quarter
• Goal should be zero exceptions from the IRS
• Run 1099 Suppler and Invoice exception reports once a month and resolve
any issues
• 1099 Data quality issues when propagated to the IRS will invoke penalties
• The 1099 B-Notice to suppliers will have to be issued and withholding
initiated if IRS intimates issues with TIN or the supplier
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IRS TIN Error Definition and Deadlines
• TIN format error
– TIN is not provided
– TIN has more or less than nine digits
– TIN includes an alpha character in one or more of its nine positions.
• TIN Error Definition
– Name/TIN combination does not match and or
– TIN cannot be found in the files of the IRS and/or the Social Security Administration.
• In case of TIN (Tax Identifier Number) Error
– Send B-Notice to Supplier within 15 days of receipt of notice
– Begin backup withholding no later than 30 business days after the date of the CP2100 notice or the date you
received it, whichever is later.
– Stop backup withholding no later than 30 days after the payee furnishes a TIN and certifies that it is correct.
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Agenda
Other Consideration
Conclusions
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Non-AP 1099 Payments
• It is possible that payments can be made to suppliers out of petty cash
• Journals are then created
• These payments may trigger 1099 reporting and will have to be captured.
• It is important that Non-AP 1099 payments be tracked by supplier in some
fashion
• The following page shows scenarios which will have to be accounted
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1099 Scenarios – Payables and Petty Cash Disbursements
Vendor
Payables 1099
Income
Petty Cash
Disbursement 1099 Income
Report to the
IRS?
(Amt > 600)
A $10,000 $111 $ 10,111Y
B $8,000 $ - $ 8,000Y
C $500 $ - $ 500N
D $300 $200 $ 500N
E $200 $401 $ 601Y
F $0 $401 $ 401N
G $0 $601 $601Y
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Off-line Merge
• It is critical that 1099 AP Data be merged with non-AP 1099 petty cash
disbursements
• It is a crucial 1099 compliance requirement
• The “US 1099 Electronic Media Report” program when run populates the
table ap_1099_tape_data_all.
• The XML of the report then can be leveraged to convert to xls and then
merged with non-AP 1099 data to generate 1099 numbers
• There are 1099 report filing vendors who can take this data and then can
generate mass mailing as well as file with the IRS
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Agenda
Other Consideration
Conclusions
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1099 Documents and E-file preparation
• 1099 Document mailings and E-file can be done in-house or outsourced
• If all payments are made out of Oracle payables, then in-house 1099-Misc
form and e-file can be generated by running the programs and should
suffice
• Oracle Cloud team may patch the system for the 1099 format for that year
if needed
• We recommend planning this ahead of time with the cloud support team
• If 1099 Data from Payables need to be merged with Petty Cash
Disbursement, an option is to do offline and outsource the mailing and
electronic filing
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State Filing of 1099
• 36 states require filing of 1099 with them
• Most States support electronic filing on their web sites
• It is important to file with the states whether it is electronic or paper
• Separate the Supplier Data with State as a filter
• And file with the 36 states either electronic or paper
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Agenda
Other Consideration
Conclusions
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• 1099 is based on the Jan-Dec Fiscal Calendar
• It is likely that customers may go live in a month other than January
• The 1099 balances from the prior system will have to be merged with the
current year 1099 data
• There are two options that can be considered
– Offline Merge as discussed in the prior section
– Invoice and Credit Memo with zero dollar payment
– The steps are discussed in support note
• How to Enter a 1099 Starting Balance For A Vendor or Supplier From a Legacy System (Doc ID
1999727.1)
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• Recording 1099 Information for conversion balances
– Create an invoice for the total amount of the adjustment with an Income Tax Type
Code.
– Create a credit/debit memo without the Income Tax Type Code for the same amount.
Please use a dummy tax type such as INDE/F for the Credit Memos
– Create a zero dollar payment for the invoices
• GL Accounting will net to zero for these invoices and payments
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Example of 1099 Conversion – Create Supplier
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Example of 1099 Conversion-Create Invoice
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Example of 1099 Conversion-Credit Memo
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Example of 1099 Conversion – Zero Payment
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Example of 1099 Conversion – Invoice/Credit Memo Acctg
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Example of 1099 Conversion – Payment Accounting
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1099 Report
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Agenda
Other Considerations
Conclusions
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• Address Considerations
• (Doc ID 1999746.1)
• “The 1099 form only allows 30 characters of the address, and this is not enough.
• This has been requested over and over and there is not enough room on the form to handle more than 30 characters. Oracle does
not have control over the size of the form, this is an IRS design. You will have to use abbreviations in your supplier site address to
shorten it to 30 characters. You can make a special site just for this case, and make it the Tax Reporting Site.
Our software takes the 1st supplier site address line and truncates the trailing spaces, adds one space, and concatenates the 2nd
address line, etc., until there are 30 characters, and then truncates the rest of the address lines.
Another solution is to print Vendor Mailing Labels, and they can peel off the appropriate label and stick it on the envelope.
• NOTE: All sites are reported on 1099s. The Tax Reporting Site is the site that has its address used for printing on the 1099 form. That
is how Oracle knows where to send the 1099 form.
The 1099 Electronic Media will truncate the address after 40 characters.”
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Agenda
Conclusions
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Conclusions
• Filing 1099’s on time accurately is a key accounting, finance and business
milestone
• Knowledge of how Oracle does 1099 will help in meeting these milestones
• The penalties of not filing on time or incorrect supplier information can be
significant and can lead to increased scrutiny and audits
• Awareness of IRS 1099 deadlines and guidelines is a key to success
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