Year-end tax reporting can come with a multitude of worries, such as incurring fines and penalties with your ACA, 1099, and W-2 filings.
Many of these fines could be avoided with Tax Identification Number (TIN) Matching (TIN Verification). This can be a useful tool that filers don’t take advantage of.
What is TIN Verification?
TIN verification allows filers to check that a name and TIN combination matches IRS records before filing. TIN Verification ensures that all recipient data is accurate and up to date according to the IRS databases.
During TIN verification, the IRS processes each combination and returns a code value for each entry. In total there are nine different codes:
- “0” – Match
- “1” – Missing TIN, or not a nine-digit number
- “2” – TIN is not issued
- “3” – Not a match
- “4” – Invalid request
- “5” – Duplicate request
- “6” – SSN Match on the NAP DM1 database
- “7” – EIN Match on the EIN/NC database
- “8” – EIN & SSN Match on both EIN/NC and NAP DM1 databases
It’s important to note that the IRS may determine that a TIN combination is invalid, but they do not specify if the name or the TIN provided is incorrect. This leaves it up to the filer to fix the issue and document the process where applicable.
The different types of TINs
Each individual, company, and even non-profit organization must apply and acquire a TIN. Upon approval a unique nine-digit number is assigned and must be used for that person, company, or non-profit organization.
There are several different types of TIN, which all serve a unique purpose. The term ‘TIN’ is a general term that can be used to describe all of the types of TINs.
Although there are many types, and each has their own format, each TIN is a unique nine-digit number. The types of TIN include:
- SSN (Social Security Number)
- EIN (Employer Identification Number)
- ITIN (Individual Taxpayer Identification Number)
- ATIN (Taxpayer Identification Number for Pending U.S. Adoptions)
- PTIN (Preparer Taxpayer Identification Number)
All types of TIN can be submitted using IRS TIN verification / TIN matching.
Codes returned by IRS TIN matching
Again, there are 9 different codes that may be returned by IRS TIN matching. Below, we describe each code and it’s meaning.
Code “0” – Match
A code “0” returned by the IRS is the best-case scenario for a TIN match. This means that the IRS confirmed that the TIN and corresponding name was a complete match to IRS databases and no additional action is required.
Code “1” – Missing TIN, or Not a Nine-Digit Number
A Code “1” returned by the IRS isn’t terrible. It means that the TIN was either missing, or not a full nine-digit number. This could be due to human error, such as a typo or just a simple oversight. The IRS states, the TIN was not a nine-digit number or the TIN was missing with the name combination.
The solution here is to double check that there’s a TIN entered with the name, and ensure that the TIN is exactly nine-digits long. After reviewing, resubmit the combination to the IRS for verification.
Code “2” – TIN not issued
A code “2” returned by the IRS means that the TIN is not valid and has not been issued.
This means that the TIN hasn’t been issued as any of the different types of TINs, including SSN, EIN, ITIN, ATIN, and PTIN.
The first step to resolve this code is to ensure that a typo isn’t the culprit. Next, reach out to the affected employee to get the most up-to-date information.
Always be sure to document this process to avoid any potential IRS fines.
Code “3” – Not a Match
Code “3” is similar to code “2” above, but maybe a little easier to fix. The TIN and name combination was not a match in the IRS database. This means the TIN does exist, but doesn’t match the accompanying name.
One of the most common instances for this is a name change. If this is the case, reach out to the employee to get the updated information.
Another common instance for this code is if the employee has two last names. The name order must match what the IRS has on file. The solution here is to switch the order of the names.
Code “4” – Invalid Request
A Code “4” returned by the IRS means that the code entered is not valid, which could mean a variety of things. First, make sure that both a name and TIN were entered. Then, ensure that the TIN is exactly nine-digits long and does not contain special characters or symbols. There are also special rules for TIN formatting. For example, TINs cannot begin with “000”.
Code “5” – Duplicate Request
A Code “5” returned by the IRS means exactly what it sounds like it does. The TIN was requested more than one time within the bulk submission.
Code “6” – SSN Match on the NAP DM1 database
A Code “6” is returned when the TIN type entered in a bulk TIN submission is listed as an ‘unknown’ TIN type. This code means that there was an SSN match within the specified IRS database.
Code “7” – EIN Match on the EIN/NC database
Code “7” is returned when the TIN type entered in a bulk TIN submission is listed as an ‘unknown’ TIN type. This code means that there was an EIN match within the specified IRS database.
Code “8” – SSN & EIN Match on both the EIN/NC and NAP DM1 databases.
Code “8” is returned when the TIN type entered in a bulk TIN submission is listed as an ‘unknown’ TIN type. This code means that there was both an SSN and an EIN match within the specified IRS databases.
Okay, but what is the benefit of this additional step?
Using TIN verification can prove very useful for filers. Verifying this information before filing can help you to avoid B & P notices, fines and penalties.
According to IRC 6721, filers who report a missing TIN or a TIN that is determined to be incorrect will be subject to a penalty. Failure to correct a TIN may result in the filer receiving Notice 972CG with a list of the invalid TIN(s). This can be avoided altogether with TIN verification before filing.
CP2100 or CP2100A is sent out by the IRS bi-annually in the months of April and September. CP2100 is a “B” notice that contains a list of employee TIN(s) that are invalid. Filers must begin backup withholding immediately when receiving this letter from the IRS. This notice will occur before receiving a Notice 972CG. In order to avoid getting a fine in Notice 927CG, the filer should take action immediately to resolve invalid TIN(s) with TIN verification.
Notice 972CG Penalty
Receiving a Notice 972CG or “P” notice should be made a top priority by the filer. It should be resolved as soon as possible as the filer only has 45 days to respond.
The fine amount per TIN changes annually. Make sure to check out the penalty chart from the IRS to get the most accurate dollar amounts.
It’s important to note that there is no maximum fine for intentional disregard. The IRS gives filers the required tools to avoid these situations, so be sure to use TIN verification / TIN matching to avoid this.
TIN verification is the process of authenticating that recipients’ names and tax identification number (TIN) matches IRS records. This can be an extremely useful resource that can aid in avoiding IRS fines.
TIN verification is a helpful tool that the IRS provides via their TIN matching service. Filers should use all available resources to avoid potential IRS fines and penalties by using TIN matching to verify all employee data before it is ever sent off to the IRS.
BoomTax, The Boom Post, and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors prior to engaging in any transaction.