(PYMNTS.com) -- Validating tax information to comply with the IRS: sounds like a no-brainer, something every business and finance organization would simply take for granted and have to do. However, according to a recent study by Tipalti and Gatepoint Research, 30 percent of companies aren’t validating tax forms at all, while 45 percent are doing so manually — a time-consuming and error-prone process, said Tipalti CMO Rob Israch.
The study showed that only 10 percent of organizations are using an automatic validation process, like Tipalti’s, to determine whether suppliers have submitted error-free tax forms. That’s based on a sample of 100 controllers as well as other finance and business executives polled by Tipalti and Gatepoint, regarding their company’s payables transformation strategy and payments experience.
Israch said he was surprised to find so many organizations were not validating tax info in a compliant manner, considering the current compliance regime. New policies put the onus on payers, not payees, to guarantee accurate information on tax forms.
The IRS is hiring and training more than 3,000 agents to enforce its Foreign Account Tax Compliance Act (FATCA). Validating tax information, especially for global partners, can reduce the likelihood of paying out to “suppliers” who are actually fraudsters or criminals. The IRS is also making Form 1042-S filings part of the standard tax return examination. Organizations are generally aware of the need to report 1099 income, but it seems that many are not so aware of the even greater compliance required for reporting payments made to foreign entities.
Israch said the onus is now on the payer to collect all necessary tax documents from the payee and validate the info on those forms. If this is not done, it’s the payer, not the payee, who’s responsible — and that means the payer will be taxed at the maximum rate of 30 percent.
He also said that tax compliance is something that can, and should, be addressed right up front during supplier onboarding. However, only 11 percent of survey respondents said that revamping how they onboard suppliers was a top priority in their organization’s transformation strategy. For most, invoice workflow automation is a higher priority, with fraud coming in second and electronic payments behind that. Failure to collect the proper forms at the point of onboarding leads to high risk and low compliance with FATCA, Israch said.
“The finance function needs to take this more seriously,” Israch said. “Whether you’re hiring people, adding processes, or getting new software, you don’t want to mess around with taxes. It just doesn’t look like the finance industry is leading on this, and it needs to.”