Do I need to issue 1099-NECs to incorporated companies? Accounts Payable filing question

But wait - doesn't sending extra 1099s protect you in case of an audit? I've heard some accountants say "when in doubt, send it out" to avoid penalties. And what about single-member LLCs that are taxed as corporations? Are they exempt too?

Sending unnecessary 1099s doesn't provide additional audit protection and can actually increase your chances of questions from the IRS when your reporting doesn't align with expected patterns. The IRS specifically exempts corporations from 1099-NEC requirements (with limited exceptions) because they have different reporting structures in place. For single-member LLCs, their tax classification is what matters. If a single-member LLC has elected to be taxed as a corporation (by filing Form 8832 or Form 2553), then you wouldn't need to send them a 1099-NEC. However, if they're taxed as a sole proprietorship (the default for single-member LLCs), then you would need to send them a 1099-NEC for qualifying payments over $600.

Does it integrate with common accounting software? We're using QuickBooks and the 1099 module isn't very intuitive. Also, how does it verify vendor information - does it connect to some IRS database?

I'm skeptical about these specialized tax tools. How does it know which vendors are corporations versus other entity types? Our vendors change their structures sometimes and don't always tell us. And what about the exceptions like law firms that DO need 1099s even though they're incorporated?

It integrates with most popular accounting systems including QuickBooks, Xero, and Sage. You can either set up direct integration or export your vendor data and payment records to upload. The verification process uses a combination of TIN matching with the IRS database and cross-referencing business registrations with secretary of state records, which is much more reliable than just taking vendors' word for it. The system is specifically designed to handle all the exceptions to the corporate rule. It flags attorneys and law firms that require 1099s regardless of their incorporation status, as well as medical payments and a few other special cases. It also keeps track of entity status changes by periodically re-verifying information, which caught several vendors who had changed from LLCs to S-Corps in our system.

How exactly does this work? Do they just call the IRS for you? Couldn't you just do that yourself and save whatever they charge?

Yeah right, nobody gets through to the IRS in 15 minutes. I've tried calling multiple times this year and couldn't get through at all. The IRS's own data shows their phone answer rate is abysmal. I'm very doubtful this service actually works as claimed.

They use a system that navigates the IRS phone tree and waits on hold for you. When an actual IRS agent picks up, you get a call connecting you directly to that agent. It saves you from personally waiting on hold for hours - you just get notified when there's a live person ready to talk. The difference is efficiency. Yes, theoretically anyone could call the IRS, but realistically most people can't sit around for 2-3 hours (or more) hoping someone picks up. With Claimyr, you go about your day and only get on the phone when there's actually an agent ready to talk. For tax professionals or busy AP departments, the time savings is well worth it.

Thanks for the detailed explanation! Do you recommend any specific language to use when pushing back on this with the tax director? And also - is there any downside to the corporation if they receive an unnecessary 1099? Like, will they get flagged for an audit or anything?

I would approach it from an efficiency and accuracy standpoint: "I've researched the IRS requirements for 1099-NEC filing and found that issuing these forms to corporations is specifically exempted in the instructions. I'm concerned this approach might raise red flags with the IRS since our reporting will be inconsistent with their expectations, and it's creating significant additional work that isn't required by law. I've prepared a summary of the official guidelines if you'd like to review them." Regarding downsides for corporations receiving unnecessary 1099s - while it won't automatically trigger an audit, it can create reconciliation headaches for them. Their tax department will need to make sure the reported income matches their own records, and they might need to explain the discrepancy to their own accountants or auditors. In some cases, systems that automatically process 1099 data might misclassify the income. It mainly creates administrative hassle and confusion rather than legal problems.

Yes, the IRS has the Taxpayer Identification Number (TIN) Matching Program, but it's only available if you're required to file certain information returns like 1099s. You need to register for the IRS e-services and apply specifically for TIN Matching access. It doesn't directly tell you if a company is incorporated, but it does verify that the name and TIN combination is valid. The better approach is to have all vendors complete a W-9 form which requires them to indicate their entity type. That's your documentation showing why you did or didn't issue a 1099. If a vendor indicates they're a corporation on the W-9, you generally don't need to issue a 1099-NEC (with those few exceptions others mentioned).