What does the IRS state regarding the reporting of Individuals as Sole Proprietors?

 

Because the sole proprietor must always use his/her individual name as the legal name of the business for IRS purposes, even when a formatted name on FNM contains two associated to the same TN99 Name Type, Colleague will always use the First, Middle, and Last name of the individual as defined in CORE on NAE for population of the first line of the name in both form and media production.

However, the second name is optional. According to the regulations, the use of the business name is optional in the Second Payee Name Line Field. The following is from the media specifications section of Publication 1220, found at URL http://www.irs.gov/pub/irs-pdf/p1220.pdf on page 64:

248-287 First Payee
Name Line

Required. Enter the name of the payee (preferably last name first) whose Taxpayer Identification Number (TIN) was provided in positions 12-20 of the Payee “B" Record.

Left justify the information and fill unused positions with blanks. If more space is required for the name, use the Second Payee Name Line Field. i reporting information for a sole proprietor, the individual's name must always be present on the First Payee Name Line. The use of the business name is optional in the Second Payee Name Line Field. End the First Payee Name Line with a full word. Extraneous words, ties, and special characters should be removed from the Payee Name Lines. A hyphen and an ampersand are the only acceptable special characters for First and Second Payee Name Lines.

Note: If a filer is required to report payments made through Foreign Intermediaries and Foreign Flow-Through Entities on Form 1099, see the 2014 General instructions for Certain information Returns for reporting instructions.
288-327 Second Payee Name Line

There are multiple payees (for example, partners, joint owners,
or spouses), use this field for those names not associated with the TIN provided in positions 12-20 of the “B" Record, or if not enough space was provided in the First Payee Name Line, continue the name in this field. Do not enter address information. It is important that filers provide as much payee information to the IRS as possible to identify the payee associated with the TIN. See the Note under the First Payee Name Line. Left justify the information and fill unused positions with blanks.

See Note above under the First Payee Name Line.

Please note: This screenshot is of current version of IRS Publication 1220 as of January 27, 2015. This information is subject to change

In order to produce the optional Second Payee Name Line content using FNM, we also need to define a first line to be sure the second line is evaluated as such within Colleague. To do so, even though Colleague derives the first line from NAE, we can create an FNM entry for the individual consisting of two names where both lines contain the TN99 Name Type.

Recreating the Scenario

Let’s begin with creating a vendor incorrectly as an organization. For this example, we’ll use vendor 0129389. This vendor was created by first accessing VEND, and after entering the name, “James Johnston DBA Pretty Pink Pony Parties”, I defined them as a Corporate Organization, by responding “P” to the prompt, “Is this a Corporation (C) or Person (P)?”

Next, on ORGP, I will complete the vendor definition by populating them with an address and fictitious EIN.

Next, to ensure that the conversion will work for this vendor, who is a 1099-MISC vendor, I’ll also create and then pay a voucher with date that falls within tax (calendar) year 2014 and a total that exceeds the minimum balance amount for reporting non-employee compensation (NEC), or box 7 on the 1099-MISC form.

From that point, after the check has been produced (CKPR) and posted (CKPO) to the General Ledger, I’ll run MGEN to generate this vendor into the 1099-MISC work files, and then either MANA could be run, or MFRM (after a status change on MISC) to confirm the result. Alternatively MISA could also be used to display this vendor as they appear in the work files.

Now, the stage is set. We’ve confirmed this is a vendor who will receive a 1099-MISC, but based on the above address, and the information seen in the context header, we’ll need to convert this vendor to an individual, and instead of the name displayed as a Corporate Entity, we’ll need to ensure that the name is displayed as a two-line formatted name displayed as follows:

Name

James Johnston

Second Name

DBA Pretty Pink Pony Parties

Performing the Conversion

First, I’ll access SLED, and create a new saved list named CCPE.VENDORS. In it, I’ll enter the ID of this vendor, 0129389.

After Saving/Updating from SLED, I’ll access CCPE. On CCPE, I’ll enter the saved list name created above, and Save/Update to run the conversation process.

One thing to note: No report will be generated to confirm the conversion was complete. To confirm completion, I’ll pull this record up on NAE. If the form populates, conversion has occurred.

There will be some required cleanup of this record. I’ll first detail on the address field to reconnect the vendor to the entered address on ADR, detailed from ADSU.

To reconnect the address, I’ll attempt deleting on ADSU and then re-adding it exactly as before, and then re-enter the tax ID from EIN format to SSN format.

Next, I’ll access FNM and enter two formatted names. Both will contain a TN (Sole Proprietor) Name Type.

From this point, I’ll save from FNM. I’ll perform a final review of the vendor’s demographic information, and if the information is satisfactory, I’ll consider the conversion complete.


***Stop here and advise HR that they may continue to process the employee***