Do You Have Foreign Vendors Hiding in Your VMF?

Most organizations have non-U.S. vendors lurking in their vendor master files, but may not even realize it. Worse yet, some of those vendors may appear on the watchlists published by the U.S. government. Because doing business with these entities without proper due diligence regarding withholding — or even doing business with them at all — can result in steep fines and penalties, it’s important to identify those vendors in order to maintain compliance. But where to begin? 

Vendor master file expert consultant Debra R. Richardson discusses this issue with IOFM’s Managing Editor Royce Grayson Morse, reviewing techniques that will help you identify foreign vendors you may not know you have. Once you find them, Richardson explains how to set them up properly and make sure you’re managing them correctly going forward. That includes collecting the right tax form and checking them against the government blocked and prohibited lists, plus recovering VAT and GST taxes if you paid them. 

Listen in on the podcast “Identifying Foreign Vendors in Your VMF — and What to Do When You Find Them,” to discover best practices for managing these vendors in order to maintain compliance and avoid significant financial implications.

Debra Richardson

Debra is an accounts payable speaker, consultant, and trainer with over 20 years of experience in AP, AR, general ledger, and financial reporting for Fortune 500 companies including Verizon, General Motors, and Aramark.

For ten years, Debra has focused on Global Vendor Setup and Maintenance.  As AP Sr Manager she led a team that processed over 2,000 vendor add/change requests per month, was responsible for 140k+ active global vendors across seven ERPs, and distributed and filed up to 30,000 IRS 1099’s and 1042’s per year.  In her consultancy, she provides accounts payable teams consulting services and training to add authentication techniques,  internal controls, and best practices to prevent fraud, fines, and bad vendor data. 

She has a YouTube channel where she posts vendor master file tips every Tuesday, and hosts a weekly podcast:  “Putting the AP in hAPpy”.

Royce Grayson Morse

Royce Grayson Morse has been working with IOFM for the past eight years, writing and editing content about Accounts Payable, Accounts Receivable, automation, and industry trends. She has worked on the IOFM Certification Guides and written the associated examinations; edits the annual 1099 and 1042 Master Guides; conducts podcasts; and manages the IOFM.com website content.

Transcription

Grace Chlosta: Welcome to the IOFM podcast. This is a podcast for accounts payable and accounts receivable professionals who want to stay in the know with current AP and AR trends and ideas. We'll be interviewing professionals in this space on a wide variety of subjects, including automation, artificial intelligence, career growth, compliance, leadership, and much more.

00:00:29

In today's episode, we'll be interviewing Debra Richardson. Debra is an accounts payable speaker, consultant, and trainer with over 20 years of experience in AP, AR, general ledger, and financial reporting for Fortune 500 companies, including Verizon, General Motors, and Aramark. For 10 years, Debra has focused on global vendor setup and maintenance. As AP Senior Manager, she led a team that processed over 2,000 vendor add/change requests per month, was responsible for 140,000+ active global vendors across 7 ERPs, and distributed and filed up to 30,000 IRS 1099s and 1042s per year.

00:01:11

In her consultancy, she provides accounts payable teams consulting services and training to add authentication techniques, internal controls, and best practices to prevent fraud, fines, and bad vendor data. She has a YouTube channel where she posts vendor master file tips every Tuesday, and hosts a weekly podcast putting the "AP" in "happy."

She'll be interviewed by Royce Grayson Morse, Managing Editor at IOFM. Royce Grayson Morse has been working with IOFM for the past eight years, writing and editing content about accounts payable, accounts receivable, automation, and industry trends. She has worked on the IOFM Certification Guides and written the associated examinations, edits the Annual 1099 and 1042 Master Guides, conducts podcasts, and manages the IOFM.com website content.

00:02:00                     

Royce Morse: Hi, Debra, and thanks for joining us.

Debra Richardson: Hi, Royce. Thanks for having me. Love coming on podcasts and talking vendor.

Royce Morse: Yup. Well, and it's what you do and you do it so well. Today, I want to ask you some questions about foreign vendors. We've had some questions to our "Ask the Expert" forum lately about: How do you identify a foreign vendor? I think that some of our folks have foreign vendors in their vendor master file and don't even realize it, which means they may be non-compliant with reporting on that. Let's start out [with]: Can you give us some tips on how to find the foreign vendors in your VMF, to start with?

00:02:46                     

Debra Richardson: Sure. I completely get that you get questions in your forum about foreign vendors, especially if the accounts payable team or the vendor team has inherited the vendor master file, right? They may not know that they're in there. They may have been told that, "No, we don't have any foreign vendors." And lo and behold, they're there. I work with clients a lot, too, that when I ask if they have foreign vendors, their first answer or the quick response is: "No, we don't have foreign vendors." And 90% of the time, right, when we actually dive into it, absolutely they have foreign vendors. And to your point, they're missing out (or could be missing out) on some required filing, and really just set their company up for potential penalties related to not doing that.

00:03:46 

But some tips of finding it: I've got three different ways that I have found that will uncover those hidden, foreign vendors in the vendor master file, but certainly, depending on the accounting system or ERP, there could be more. These are the three that I've found. 

Actually, let me step back a bit. The first thing you do need to do is run a query or report from your accounting system or ERP, and I recommend that you pull in or include in that report the fields of the vendor name, the vendor tax ID field, the state field, and also the country field and any other fields that you think might be necessary based on how your vendor master file is set up. 

00:04:50

Maybe the vendor ID, so you could have that unique field or unique piece of data, so you can download that as well. But you at least need the vendor name, tax ID, state, and country fields — oh, and DBA if you need that, too, but that's not always necessary. 

So once you have that information, I would look at three different pieces of data. The first one is — and I know you might think that it might be country, and you could look at that, too, but country tends to have — if they've put the address in right, then you'll have the right country in for the most part. But I always recommend starting with looking at the two-digit states, that ISO. Is that the abbreviation for the two-digit states? 

00:05:52

Or, if your system has the three digit, just start with the states because what I typically see in the two-digit states is you'll see some values that are not part of the two-digit state abbreviation. You'll see things like "IR" for Ireland, or GB or I've also seen a lot of AUs or EUs. That's really because the team members that created that vendor record just didn't know how to enter in the foreign address, that international address. 

Royce Morse: Do you ever see CA and you think it's California when it's, in fact, Canada?

Debra Richardson:   That's a good one, absolutely. That is a good one. And you can tell that because of the address, right, because the other parts of the address will be different. But that's a good point, too.

00:07:01 

Yes, I would start in the states and just look at things that are not part of the abbreviation. To your point, always check Canada (CA) to see if it's California or to see if it has one of the Canadian provinces that is like the telltale sign that it's Canada. That's a good place to start. 

Then the next one. Royce, this may have been the first one you thought about was the tax IDs. They're not all the same as the IRS tax ID with the nine digits, although many foreign vendors can have IRS tax IDs, because sometimes they're required to have it. 

00:08:01

If they have like a treaty claim or something, they are required to have an IRS tax ID, so they could have it, but it would be nine digits. And some of them may start with 98, but I will say that that whole — because that's what we used to go by back in the day. If it started with 98, that was a flat that it was a foreign vendor. And it still could be. It's just not across the board anymore. The IRS used to have the 98 as the first two digits of the employer identification number (EIN) of a foreign company, but then they stopped that practice. They used to do that when you went through their online assignment of the EIN, and they would start the EIN with 98 if it was a foreign company that was requesting it, but they don't do that anymore. 

00:09:12

I forget what then they stopped it, but I think it's been a few years. 

Royce Morse: I didn't realize that.

Debra Richardson: Yeah, so if you have any that start with 98, that's great. But just because a vendor doesn't have a tax that [starts] with 98 does not mean (or no longer means) that it's not foreign. It really still could be a foreign vendor.

Royce Morse: Okay, interesting. Are there any shortcuts for this process? Some companies may have tens of thousands of vendors. How do you recommend people attack this project?

00:09:53                     

Debra Richardson: There's still one more way that I would say that they would look or that they can look for foreign vendors. Of the three, we talked about looking at the states. We talked about looking at the tax IDs. With the tax IDs, too, they could have an IRS tax ID, or they could have a tax ID that's not formatted like the IRS. Other countries — it's not all about the IRS tax ID; other countries have different business/individual income tax, sales tax, registration numbers that can be entered into your vendor master file. As a matter of fact, I do recommend it; that way, you have a unique number for that vendor.

00:10:49

They could have other tax registration numbers. So if you find a tax registration number that is not formatted or is not nine digits like the IRS tax ID, that can be another indicator that it's a foreign vendor. So that's two ways. And then the third way is I would also look for foreign company indicators, the same way that we have "incorporated" or "Inc" in our company names for U.S. corporations or U.S. companies. If they do have the "Inc," then that is a great eyeball test to say, "They are a U.S. corporation." But other countries have other indicators. They have foreign indicators by country. The IRS actually has some regulations (§301.7701-2) that list the foreign indicators by country.

00:11:56

A great example is a public limited company, so "PLC." That's used by many countries, like Australia, as a designation that their companies are corporations. But again, seeing that, if you see a PLC, that could be an indicator that a vendor is a foreign vendor. Those three things to look at. Surely, you may have more (or the listeners may have more) based on like how their vendor record or accounting system or ERP is configured, what additional fields you may have in there, but those are the three that I initially start with and are pretty generic across all accounting systems, the ERPs, meaning they all have that. You just may have (or the listeners just may have) more, depending on how their accounting system or ERP is configured. 

00:13:03                     

Royce Morse: All right. So let's say you do this process and you find some foreign vendors you didn't know how you had. Now what do you do?

Debra Richardson: So the first thing that I would recommend is to, once you've found them — and to your point or question before about you could have lots of vendors in your vendor master file. Are there any ways to make that identification process easier? It could be, especially if someone has a vendor self-registration portal or some other tools that may be able to find that, but I will tell you that when I was a practitioner, and even now when I work on files, I typically tend to do that on a manual basis.

00:14:03 

I may come up with some formulas in Excel to find things and some filters, but, like most thing, Royce, in the vendor master file, it's a pretty manual process. What to do next? So once you identify (however you do that) and find foreign vendors in your vendor master file, it's time that you need to validate that information, just make sure that you have the information in there and that it is validated based on what is required for that vendor, for that country. Make sure that you have the information in there entered correctly. 

00:14:54  

The first step that I would say is to collect the applicable forms if they're not on file. If you didn't think you had any foreign vendors, maybe you didn't collect the correct W-8, for example. Maybe, especially if you inherited the vendor master file, even if they did collect it, you may not know where that documentation is, especially with the W-8s because they expire after three years. So if you determined that you do have foreign vendors and you look at the creation date of that file or of that vendor record and it's past three years, then it could be that you need to collect a new W-8 anyway. 

00:15:59

So I would say, collect the applicable W-8. That'll give you, one, compliance for collecting the form that's required, and then, two, it'll give you some additional information that you can use to verify what's already on file, like the address, and then also maybe some additional information that you didn't have or an updated address that you can use. You can use that information to update it. 

Royce Morse: I see.

Debra Richardson: So I would collect that. And if you have any other forms that are required for vendor setup beyond the W-8, I would actually treat them as a new vendor, as you would treat a new vendor, and collect all of the required forms that you would for a new foreign vendor and make sure that you update the information as applicable. But, I will say: Make sure you validate it first. I do have some options for that.

00:17:15                     

Royce Morse:  How would you go about validating?

Debra Richardson: Yeah, so there are a couple of things. We're collecting the W-8s. We've identified them, could have identified them based on their tax ID, their IRS tax ID, or their vendor registration number that's appliable in their country. We've also identified them based on the address.

00:17:49  

For both of those, we could be updating that information or adding that information based on the documents that we've just collected, and so you do need to validate the address and those vendor registration number, including the tax ID if they have one. 

I'll start first with the IRS TIN match for those vendors that do have an IRS tax ID. So you definitely need to do the TIN match to make sure that the vendor legal name and the tax ID combination matches IRS records. And I do want to say one thing on here. Technically, the IRS has four tax IDs. I actually didn't know that, Royce, when I was a practitioner. I just figured that out after I started doing lots of research. [laughter]

00:18:55

Beforehand, we were so busy all day long. I was an AP manager, and I'm sure other AP managers listening can — this resonates with them. You do all your project work and all your calls during the day, and it's not until you get home and plug up that you actually do your work. So it's kind of hard to do that extended research, but the IRS does actually allow or have four different tax IDs. Of course, we are all familiar with the Social Security Number (SSN). We're also familiar with the Employer Identification Number (EIN). They also have something we probably never see, which is the Adoption Taxpayer Identification Number (ATIN). It's really just for parents of adoptive children when they don't have or the child has not been issued a Social Security Number yet, so the IRS will issue them a temporary ATIN. As soon as they get the SSN, it goes away.

00:20:07 

But the other one is something that they can receive, and that's an ITIN, an Individual Taxpayer Identification Number. It's actually formatted just like the Social Security Number. It's a nine-digit number. But like the ATIN, it is issued by the IRS to individuals who are required for U.S. federal tax purposes to have a U.S. Taxpayer Identification Number, but who do not have and are not eligible to get a Social Security Number. So it's formatted just like a Social Security Number, but it's issued by the IRS. 

00:20:49 

The reason that I mention that is because, unlike an SSN, it expires if it's not used for three years, and the applicant must apply again. Where you'll see this is with a foreign individual. So if you collect that W-8 from a foreign individual and they give you what looks like an SSN (but it's an ITIN). They give you that ITIN and then you go and do the TIN match and it's not successful, you go back to the foreign individual and then they go, "Oh yeah, well, that's my…" One reason why — and maybe you can tell them or ask them if they've used it in the past three years. And if not, it may be expired. If that's the case, then the foreign individual has to then apply again. But that saves a lot of the back and forth and back and forth and back and forth, "Oh, it's good." "No, it's not." "Yes, it is." "No, it's not." 

00:22:03 

Maybe the scenario is that they haven't used it and they have to apply again. 

Royce Morse: I see. For those numbers that look like Social Security Numbers but, in fact, are not, do they have a different numbering format? Do they start with a different number?

Debra Richardson: I didn't see where it indicated that it did. That actually would be probably nice because it would be an indicator that it's an ITIN and not a Social Security Number, but I haven't seen any indication that the IRS has done that, and I'm not surprised by that, either, because most of the listeners out there probably are already aware that Employer Identification Number and the Social Security Number that's issued by the Social Security Administration, yeah, they could be the same number.

00:23:00 

So they don't communicate to make sure that sequence is different, and many that use different platforms to do the IRS TIN match, where it also does the Social Security death master file check will give a lot of false positives because they put an EIN number in there, and then it turns around and matches a Social Security Number. They don't communicate with that one. They don't have separate sequences between SSNs and EINs, and so it's not surprising that they may have not have that between the ITIN and the SSN either. So I don't think that there is a way to tell whether it's an ITIN that was issued by the IRS or SSN that was issued by the Social Security Administration. 

00:24:01                     

Royce Morse: I see. Okay. Well, let's say you've gone through your vendor master file and you've identified some foreign vendors you didn't know you had. Let's talk about watchlists. Now what do you do?

Debra Richardson: Yeah. So with the watch lists, that could be — and I won't say a little tricky, but you might have to do some research. Watch lists — and I'm sure probably all the listeners are U.S. entities, and you know that for the Department of Treasury, the Office of Foreign Assets and Control (OFAC), as U.S. entities and individuals, we are prohibited from paying any vendors that are on that list.

00:24:56

We all know we need to check OFAC — hopefully, everyone's doing it, and hopefully you're doing it more on a consistent basis or may have continuous monitoring, because the set of OFAC's consolidated watchlists — it's not just one; it's a couple different consolidated lists — they change. Hopefully, you're checking them often. But, yes, you do need to check them at least against OFAC, and then you may need to check additional watchlists based on the vendor's country, and also based on your industry or what type of entity you are. If you're a healthcare organization, you receive Medicaid/Medicare funds, federal funds, then you also have to check against the Office of Inspector General — and I forget what the acronym stands for, but it's their LEIE list. I think that's the acronym. I don't remember what it stands for. I probably have it somewhere. [List of Excluded Individuals/Entities]

00:26:08 

Those are the folks that, if your vendors are on that list, it means they've been excluded from receiving federal funds. They've been found to be excluded because of Medicaid or Medicare fraud. And the same thing with sam.gov. They have an exclusion list as well. If you (or if any of our listeners) are a government entity, then you're prohibited from doing business with vendors that appear on that exclusion list as well. 

00:26:52 

And so you've got to look by country. You've got to look by maybe even based on your industry as well, in addition to OFAC. 

Royce Morse: I see. And what happens if you discover in that process that you actually have paid one of those vendors that's on one of those lists? What do you do?

Debra Richardson: I would take that to your leadership, your risk management team (if you have one), to determine what your next steps are. I would definitely put that vendor on a payment hold until you figure out what needs to be done. And in some cases, too, you do need to — or you may have to — just verify that that is your vendor that's on the list. Now, the great thing about the Office of Inspector General, their LEIE exclusion list.

00:27:51

And also for the sam.gov exclusion list as well, if you find — you search by the vendor name and if you find a matching vendor name, you can then search by or put their tax ID number in there (if they have a U.S. tax ID) to make sure, to further confirm whether that is your actual vendor or not. But if you don't have that, or if you see 'em on a watchlist where you can't put in additional information to verify it, I would take that to your leadership or your risk management team to follow up on it. 

I saw or read somewhere with OFAC that you can actually reach out to the U.S. Department of Treasury. They have a specific communication place that you can go. I thought it was a phone number. I could be mistaken, but you can find that on their website. But you can ask them. Ask for license of permission to pay a vendor that is on that list, and they can review that request. 

00:29:09

Now, to date, Royce, can you guess how many they have allowed of the requests they have received? 

Royce Morse: Very few, I'm guessing.

Debra Richardson: A big, old zero last time I checked. So I would not rely on that process to be able to pay a vendor that you find on that list, but I would definitely take that to leadership or the risk management team, someone or some group that has had more training on that piece of it, so that they can identify what the next step is. But definitely either put that vendor on payment hold or confirm with your leadership what you should do with that vendor. I know sometimes it could be on a case-by-case basis because you could find out that that's not your vendor, but you definitely don't want to continue to pay a vendor that is on that list.

00:30:11

We're always worried about the IRS penalties for having an incorrect legal name/tax ID combination for filing, for sending out the 1099/1042 forms, late for filing, late doing corrections. But the bigger fines are these watchlist fines, especially with OFAC, because they have both civil and a criminal penalties. That can get like in the millions. If you want proof of that, on the OFAC website, they actually have a page that is dedicated to publishing the companies and the amounts that those companies were fined. 

00:31:05

The companies that were fined and the amounts that they were fined. Meta (Facebook) is on that list, too. They can get up there. 

Royce Morse: Oh, my goodness. I'm just looking. I did a quick Google search. It's the Office of Inspector General maintains this list that you're talking about, the List of Excluded Individuals/Entities (LEIE). So if anybody needs to look that up, it's readily available online.

Debra Richardson: Yeah. Does it have in there what LEIE stands for? I'm getting a little old. I used to remember all that stuff offhand.

Royce Morse: Yeah, List of Excluded Individuals/Entities.

Debra Richardson: There you go, yes. I won't say I really like them, but I really like that they provide (the same way that sam.gov does) a further refinement of the search by being able to put their tax ID in.

Royce Morse: Oh, yeah, that's good, too.

00:32:05

All right, so we've got to this point now where we've identified our foreign vendors, and we've checked to make sure we didn't pay anybody we weren't supposed to. Now, at the end of the year, you've got to do tax reporting. Let's talk about how you go about doing that. 

Debra Richardson: Well, first, though, let me go through a couple other validations.

Royce Morse: Sure, absolutely.

Debra Richardson: Yeah, so we did the watchlist. I talked about the IRS TIN match. But, again, they're foreign vendors. They may have vendor registration numbers that are from their country. Depending on the country, you can validate that vendor registration number as well, whether it's a company registration number, an individual registration number, income tax registration number, or a sales tax registration number.

00:33:12 

You should take some time to see if you can do that. A couple of great examples — we all know about VAT, right, the Valued-Added Tax, that's in some countries. Well, you can validate that number. Similarly, the GST (Goods and Services Tax). I know India has it. There are places that you can validate that as well. A lot of the other countries, even if there's not a place to go and key it in and say, "Yes, that is a valid number," you can at least identify that the format is correct. 

00:33:56 

And so I would recommend doing that as well, but those ones that you can validate, such as VAT, even though it may not help us out a lot or the vendor team out a lot to have that VAT number on your vendor record and have it be correct, other teams that might use that tax number might find that valuable because you may have a separate tax team that has to file reporting to reclaim that VAT that was charged on invoices, so if you have it on the vendor record, that's great. 

00:34:42 

I remember back in July of 2017. It was all the rage because India's GST number converted to be — and I hope I'm saying that right — at the state level, which means you could have more of them. So we went through and we (in our accounting system or ERP) configured or added fields to allow for additional GSTs by state. Again, you may have a separate team that is reporting on that that would appreciate having those GST numbers on the vendor record. 

Royce Morse: I see. That makes a lot of sense.

Debra Richardson: Yeah, so I do recommend collecting and validating those non-U.S. or non-IRS tax IDs as well, where it allows. So we've talked about the watchlists. We talked about IRS tax IDs and then vendor registration numbers for other countries.

00:35:58

And then the last piece is that vendor address. You may really need to validate that because one of the ways that we found the vendors is because it wasn't entered in correctly in the system, so you may have to enter that, correct that address on the vendor record. It's a great time to validate it as well. Validating international or foreign addresses can be a little tricky, but you do want to correct them in the system. You also want to make sure that if you have to send 1042s out, which I know we're going to talk about in a minute, that when you send them out, you don't want them coming back because the address wasn't formatted correctly. 

00:36:53 

You want to make sure that you validate the vendor addresses. I do have a couple of resources for that. The first one, of course, is the United States Postal Service (USPS). They have, in Publication 28, which is their Postal Addressing Standards, under Appendix A, a sample of a foreign address under what they call like "General Requirements." That example happens to be of Germany, but it's really meant to represent any country, except they do have a separate one for Canada. So a great place to start is Publication 28. 

You can also, though, just like we have the United States Postal Service (USPS) on the U.S. side, the Universal Postal Union is for foreign countries. They actually have an addressing solutions page that, when you go on that page, if you scroll down, you will see a section called "Postal Addressing Systems in Member Countries and/or Territories." 

00:38:14

If you see that, there is a dropdown in that section and you can just select your country. Once you select your country, you'll click to download the PDF, and they'll give you the correct format of that country's address, so I really do like that. 

Royce Morse: That's very handy.

Debra Richardson: Yeah. The last one that I have — so the United States Postal Service and Universal Postal Union, both of those are free and you can access those as you need them. There is another took, though, and it's called Smarty.com. It's something that I use a lot.

00:38:59 

Royce, you were talking before about: Is there any platform or something that can make the process easier? For the address, this would be it. Now, there may be other tools out there. Maybe some folks have a tool already built into their accounting system or ERPs. Maybe you have another tool where you can standardize the foreign addresses, but, if you don't, Smarty is a paid tool. I did just look up today and you can get 100 lookups for free for 30 days using their free trial for non-U.S. addresses or foreign addresses, so that's something. 

00:39:49

But after that, it's a paid monthly subscription. It's based on the amount of non-U.S. or international addresses that you have. But what I do is I just sign up for the month thing based on how many addresses I have to clean, and then I cancel it. Then the next year, when you go to clean 'em up (because I do recommend you do that every year), you just sign up again and then just cancel it when you're done. 

But the whole point of using something like that is they also have a bulk-upload option. In addition to having a bulk upload option, something that's fairly new — because I think when I first started using it — you know, Royce, when in order to do an upload, you used to have to have all the address information in the same field. You know it's not that way in reality. 

00:40:59

The address 1 field for some vendors is line 1 of the address, but for other vendors it's the DBA. For other vendors, it's the "attention to." You've got all kinds of information everywhere. You used to have to clean that up. With Smarty now, you can put it in freeform. All you have to do is get all that data and where there are different fields, just replace those with commas, so it's like a comma-[separated] text file. But you upload it in freeform that way, and then five seconds later it spits out the correct format. It will append any additional information, just like USPS does with U.S. addresses. It'll standardize it. It'll append any missing information.

00:41:56

It'll also tell you — which I haven't found anywhere else — the status of the address. It'll tell you if it's verified, which means it's mailable and it's good. It'll also tell you if it is inactive or vacant or no match, or for some reason cannot be delivered, which is really good to know before you start distributing forms or sending other information out to vendors. I actually recommend that for U.S. addresses, as well, before you start sending all those 1099s out, because you don't want them coming back either. 

00:42:41                     

Royce Morse: No, and you don't want payments getting lost in the mail either.

Debra Richardson: Yeah, that's true. And we all know in the U.S. we still have those checks. You don't want them coming back. So Smarty is a good resource. It is a paid resource but it's a good one for this time of year and cleaning up your addresses, getting ready to distribute the 1099s, 1042s, and it's also a great way to standardize those foreign addresses of vendors that you just identified in your vendor master file.

Royce Morse: Yeah, sounds like a good tool. All right, shall we move on to tax reporting?

Debra Richardson: Yeah. So I will keep tax reporting at a high level, because I know with IOFM we have some great resources for tax reporting for 1099s and 1042s, but I will say that another reason for collecting the forms that you would normally collect for a new foreign vendor setup, when you identify these foreign vendors in your vendor master file, is so you can identify whether or not they are reportable and whether or not they're withholdable, and, if they are withholdable, at what rate?

00:44:16

So, [then] you can update them accordingly in your accounting system or ERP, so when it comes time for tax-reporting season, they are already appropriately updated in your vendor master file. 

Royce Morse: Absolutely. And I would recommend for folks that do have foreign vendors and have questions about reporting, tax treaties and all that kind of stuff, that they get the IOFM 1042 Master Guide, which can be found on the IOFM website.

00:44:51                     

Debra Richardson: Yeah. The 2023 version, the new version for tax year 2023, is out now, so it's readily available.

Royce Morse: Absolutely. Well, any final words for us? Any other little bit of advice for folks that are now grappling with foreign vendors that they may not have even known they had?

Debra Richardson: Yeah. So the best advice that I have is to document your process, your vendor-onboarding process. And when I say "document," I mean to document based on U.S. vendors, non-U.S. vendors, adding a vendor, updating an existing vendor, and do it by ERP. So have desktop procedures or standard operating procedures (whatever you call them) process docs that show your team members and future team members how to enter in those vendors.

00:46:00

So next time you don't have to look for those foreign vendors because they weren't entered in correctly. Have a documented process for how to enter them in, what you need to collect, so that everybody is doing the same thing, and you don't have to go through this process again. 

Royce Morse: Absolutely. And training people on that routinely, especially new folks coming in. That's also a refresher to people that have been doing it for a while, just to make sure everyone is doing it the same way.

Debra Richardson: Everyone is doing it the same way, yes. One more piece of advice is: collect the information that you need. In some cases, you need more information than what is included on the IRS forms. So if you have (or want) a separate vendor setup form, have that separate vendor setup form. We can require more than what the IRS requires, right? We just can't require less. So if you need more information for your foreign vendors, or for your U.S. vendors for that matter, create that vendor setup form and collect it if that's going to help identify whether they're reportable, withholdable, if that's going to help populate required fields in your accounting system or ERP.

00:47:31

Collect that information, and then also put that in your desktop procedures or SOPs or process docs, again, so everyone is collecting the same information, putting it all in the same way, and having that as your reference for existing team members and something to train with for your new team members. 

00:47:59                     

Royce Morse: That's terrific advice. I want to say thank you, Debra. This has been a very informational session. I think there's a lot of good stuff that people can take away, and they can start looking at their vendor master files to make sure that they are compliant, that they are doing things consistently throughout, and are able to fix anything that is inconsistent. We appreciate your contribution of time and your knowledge. Thank you so much.

Debra Richardson: All right, thanks for having me on. I appreciate it.

Grace Chlosta: Thank you so much for listening to the IOFM podcast. Remember to head on over to the Member Forum to discuss today's episode and provide ideas for our next one. And to stay up to date on IOFM's current events, both in-person and virtually, head on over to IOFM.com.