Every January, businesses race to issue Forms W-2, 1099, and 1099-NEC, but a small typo in a Social Security Number (SSN) or Taxpayer Identification Number (TIN) can turn into a surprisingly expensive sequel. The IRS requires information returns to include a correct name/TIN combination. If the name doesn’t match the TIN — or the TIN is missing entirely — the IRS can assess substantial penalties and interest. Given the current administration’s focus on illegal immigration, it is imperative that businesses take proactive measures to avoid filing information returns with the IRS that include names and TINs that do not match.
Think of it as Back to the Future: Tax Edition. The best time to fix a name/TIN mismatch is before the return is filed — because unlike Marty McFly, you don’t have a flux capacitor to go back and fix it later. The IRS cross-references information returns against Social Security Administration and IRS records, and mismatches can trigger backup withholding notices, penalty notices, correction work, and documentation requests. Dealing with those IRS notices means time and money; a business will divert resources to potentially rectify the missing or incorrect SSN/TIN or pay fees to an advisor to ask the IRS to abate penalties and interest.
The good news? You don’t need 1.21 gigawatts to avoid these penalties. You just need solid onboarding procedures and careful review during tax return preparation.
The Potential Consequences: “Great Scott, the TIN is Off!”
The primary penalty risk comes from Internal Revenue Code Section 6721, which imposes penalties for failing to file correct information returns — including returns with missing or incorrect TINs. Section 6722 adds another layer: penalties for failing to furnish a correct payee statement to the worker, vendor, or contractor. In some cases, both penalties can apply to the same erroneous information.
The dollar amounts add up quickly because penalties are assessed per return, subject to annual maximums based on filing year, correction timing, and business size. For returns due in 2026, incorrect or missing TINs that remain uncorrected after August 1 carry a $340 per-return penalty. The maximum penalty caps at $4,098,500 for large businesses and $1,366,000 for small businesses (gross receipts of $5 million or less). If the IRS determines the failure was due to “intentional disregard,” the penalty jumps to $680 per return or statement with no maximum penalty.
The Warning Signs: CP2100 and 972CG Notices
Before assessing penalties, the IRS may issue a CP2100 or CP2100A notice alerting a business to potential backup withholding responsibility due to missing or incorrect TINs on information returns. The CP2100 is issued when a business has filed 50 or more incorrect returns; the CP2100A covers fewer than 50.
But the IRS doesn’t always send a warning shot. Sometimes, you’ll receive a Notice 972CG (Notice of Proposed Civil Penalty) directly. This notice explains the proposed penalty, lists the problematic returns, and gives you a deadline: generally 45 calendar days (60 days for foreign filers) to respond. Miss that deadline, and the full penalty gets assessed. Once assessed, interest accrues on the penalties until paid.
There is also a backup withholding consequence for certain payments made after receiving a CP2100, CP2100A, or Notice 972CG. IRS Publication 1281 advises that backup withholding is 24%. Backup withholding can apply to reportable payments — including interest, dividends, rents, royalties, commissions, and nonemployee compensation. Wages paid to employees are generally exempt from backup withholding.
Fixing the Timeline: Three Steps to Avoid Penalties
You don’t need a DeLorean to prevent these problems. Here are three steps to keep your information returns from becoming a sequel nobody asked for.
Step 1: Collect the Right Forms Upfront
It’s boring but powerful: collect the right form before paying anyone. Use Form W-9 to obtain a worker’s or contractor’s correct name and TIN — the form requires the TIN to match the name on Line 1. For employees, use Form W-4 and verify the name and SSN against their Social Security card.
Step 2: Verify Before the Clock Tower Strikes Midnight
Use available verification tools before January 31. For employees, the SSA’s Social Security Number Verification Service confirms whether an employee’s name matches their SSN. For independent contractors and other nonemployee payees, the IRS TIN Matching Program lets eligible businesses check Form W-9 and Form 1099 name/TIN combinations against IRS records before filing. For independent contractors and other nonemployee payees, the IRS TIN Matching program can help businesses avoid having their 1099 process go off the rails.
The IRS TIN Matching Program offers two options for verifying name/TIN combinations: Interactive TIN Matching provides real-time results for up to 25 name/TIN combinations, while Bulk TIN Matching can process up to 100,000 combinations with results within 24 hours. Eligible users include businesses filing Forms 1099-B, 1099-DIV, 1099-INT, 1099-K, 1099-MISC, 1099-NEC, 1099-OID, 1099-G, or 1099-PATR.
Step 3: Build a TIN Solicitation Record
If something does go wrong, a solid solicitation record can support a reasonable cause defense. To establish reasonable cause, businesses must show they acted “in a responsible manner” before and after the failure and that either “significant mitigating factors” existed or the failure was “due to events beyond the filer’s control.”
Typically, acting in a responsible manner means making an initial solicitation for the TIN when the worker or contractor begins work — typically via Form W-9. If no TIN is received, businesses may need to make up to two annual solicitations. For an incorrect TIN, the first annual solicitation is required after the IRS sends a CP2100, CP2100A, or Notice 972CG. A second may be required if the IRS notifies you again in a later year that the mismatch has not been fixed.
When a Notice Arrives: Don’t Panic
If you receive a CP2100, CP2100A, or Notice 972CG, take a breath. A mismatch can result from a simple data-entry mistake, a recent name change, or even an IRS processing error. Compare the notice against your records before assuming the worst. If the worker provided incorrect information, ask the worker for the correct information, update your records and use the correct information on future filings.
Requesting Penalty Abatement: The Reasonable Cause Defense and De Minimis Exception
Requesting penalty relief isn’t for the faint of heart. A reasonable cause request should be robust and supported by contemporaneous documentary evidence showing what the business actually did — not what it wishes it had done. The request should:
- Be in writing and identify the specific Treasury Regulation penalty waiver provision
- Include facts establishing reasonable cause and responsible conduct
- Be signed by the person required to file the return
- Include a declaration under penalties of perjury
- While businesses aren’t required to submit copies of Forms W-9 or solicitation letters with the request, they should maintain those documents to substantiate that required solicitations were made.
- A positive TIN Matching result that is documented can also support an abatement request.
The De Minimis Exception
There’s also a narrow penalty-relief tool worth knowing: the failure-to-file or failure to furnish penalty won’t apply to the greater of 10 returns or ½ of 1% (0.005) of total information returns required, provided the business: (1) filed those returns on time, (2) failed to include required information or included incorrect information, and (3) filed corrections by August 1 of the filing year.
Conclusion: Roads? Where We’re Going, We Don’t Need Roads
A wrong SSN or TIN may seem like a minor clerical error, but the IRS can turn it into an information reporting failure, a backup withholding problem, or both. The penalties are real, and they add up fast. But you can’t go back in time to fix past mistakes. What you can do is avoid running into Biff — er, the IRS — by making name and TIN verification a standard part of your onboarding and tax preparation process.
Questions about TIN compliance, IRS penalty notices, or reasonable cause requests? Contact Adam R. Young or Elizabeth Blickley — because when it comes to IRS penalties, the best time to act is now.