We recently batched up our bad debt write offs and our owner mentioned sending a 1099 to the companies that didn’t pay us. His logic is that if they didn’t pay us, then they might as well show the debt as income and have it reported. I like the idea but have hit a roadblock in sending them. I need the EIN to complete the form and send it. I don’t have those in some of the files and have looked on the internet and can’t find them. Where can I go to get EIN’s for my bad debt customers?
— Trying to Pass on the Pain in Pittsburgh
Dear Pain Passer,
If misery loves company, and no good deed goes unpunished, then what goes around comes around completes your trifecta of cliches, my dear seeking-to-pass-the-pain-on. Someone’s done you wrong and you are looking to repay the favor. This has all the makings of a country song.
The 1099. One beautiful little form that reminds your erstwhile deadbeat that, while he may be gone from paying the debt to you, he is not forgotten. Not by any stretch. Credit managers have notoriously long memories. I may not remember what I ate for breakfast, but I can remember a company and its officers that left me holding the very empty bag from back in 1991.
The 1099, for those of you less enlightened to this credit managers’ weapon in the arsenal, is a form that is used to report income from a source that is not your employer. Let’s keep it straight; there are a multitude of 1099 forms and we are talking about the 1099C. Used by creditors to report to the IRS that a debt has been forgiven, i.e., not paid to you (never mind this was a forced forgiveness), the IRS can then count the forgiven debt as income for federal tax purposes and increase the amount tax owed to the feds. While this doesn’t result in payment to you, my pained creditor, it does allow you to let karma come around.
Before you get filing happy there are some rules. Disputed debts, remaining balance of a settlement, or bankruptcy debts are all off the table, along with debts that are so old the statute of limitations to collect has expired. The debt must be a legitimate uncollected debt that you are writing off. If you have placed it with a collection agency or attorney and are still actively working to collect, then step away from this form.
Now to the heart of your inquiry—where to get the elusive EIN. You get it from your customer, usually on your credit application as part of the process. The Employer Identification Number is to businesses what the social security number is to individuals. This makes it tough to locate involuntarily. There is no government website that lists a company name with its EIN. Urban myth says you can locate an EIN on a company’s commercial credit report. In actuality, it is hit or miss; mostly miss. It is inconsistent at best, and typically a waste of report dollars. Out of the eight I just looked up, only one was available. Not the best odds, but at least a way to hold out a little hope, however fleeting. Of course, you can always call said debtor and ask them for their EIN. They may give it to you; someone who answers the phone may not know the significance of the number and rattle it off.
Stranger things have been known to happen.
So, no identification number and no way to get it? Don’t despair; lets grab that silver lining. This is a golden opportunity for you to gently remind everyone of the importance of completed credit applications. Information is power and best collected before you go into need mode.
While you’re reminding them, may I suggest a little tune to help that medicine go down? Come along and sing it with me—“Hey won’t you play, another somebody-done-somebody-wrong song, and make me feel at home, while we eat this loss (that was probably your fault)…” Ok, that part was just in your head; no sense getting snarky. Let that tune roll around in their heads for a week or so.
With more than 30 years of credit management experience in the LBM industry, Thea Dudley consults with companies on a wide range of credit and financial management issues. Contact Thea at firstname.lastname@example.org