As we head into the fourth quarter, it’s time to start thinking ahead to end-of-the-year tax responsibilities. Corporations in the United States that utilize contractors and vendors need to start filing a Form-1099 for each business collaborator. Before filing, it’s a good idea to review your data and make sure all filings are accurate. Depending on the number of contractors or vendors you’ve worked with, this has the potential to be an intensive process.
Understanding 1099 designations
Filing 1099s is even more important for oil and gas companies because of the way the Internal Revenue Service (IRS) handles natural resource income, such as royalty payments. Typically, oil and gas companies need to issue 1099s through three modules:
1. Revenue — This designation is for individuals who receive royalty payments based on production or as part of a recurrent payment model.
2. Accounts payables — Payment made to vendors for repairs and supplies are usually tracked through the Accounts Payables module.
3. Land management — Land lease payments and contract payments made to taxpayers need to be accompanied by a proper 1099.
Choosing the correct 1099 form is just the start of accurate accounting. Before completing and issuing 1099s, it’s up to your business to verify the data associated with all contractors and vendors.
Updating and verifying information
Tax information must be precise to avoid any mistakes or misunderstandings that may trigger an audit or complications in filings. Here are a few key steps oil and gas companies need to take in validating 1099s each year:
- Ensure your company has received accurate W-9 forms from all vendors.
- Verify all royalty payment addresses are accurate. If not, payments are escheated after a particular period of time.
- Understand the structure of the royalty payment — is it a trust, individual, or another corporation?
- Check for ownership updates on the royalty holder — is their information accurate?
- Determine if sending a 1099 to other working interest partners is necessary.
- Understand the vendors’ structure — are they individual contractors, partnerships, or an LLC?
Without a system in place to collect, aggregate, and verify this data, the entire 1099 issuance process has the potential to be a nightmare for oil and gas companies.
The importance of an MDM system
A master data management (MDM) system accurately tracks contractor and vendor information on a regular basis, which is a tremendous help for oil and gas companies. Instead of scrambling late in the year to reach contractors and vendors to verify information, an MDM creates an updatable and manageable record of this data. Some MDM solutions we recommend include:
- Riversand: Although it is retail-focused, some oil and gas companies use this product. Its feature-rich enterprise model includes options for customer information management, digital asset management, vendor portal, supply chain linking and oversight, and robust data reporting.
- Reltio: Largely popular in the pharmaceutical space, this MDM emphasizes operational cost savings through measurement and management of core supply chain metrics. By gathering and aggregating supply chain data, this platform offers focused insights for how to grow smarter while staying compliant.
- Oracle MDM: Used generally by companies with an Oracle EBS footprint, this software is capable of encapsulating the entire Oracle ecosystem to deliver driving insights into how companies may better optimize client, customer, and vendor management.
- SAP MDM: Used largely by companies with an SAP footprint, this platform aggregates and consolidates data into an easily managed dashboard. It enables companies to see all pertinent customer data, as well as update and group individuals for better management.
- Informatica MDM: This is a more experienced MDM system and is widely praised for its integration system, which brings customer and vendor data together directly with important business information, including services rendered, rates, compliance data, and tenure.
- Talend: An open-source MDM gaining trust and popularity, this platform is cloud-based for optimal accessibility and extremely robust in its integrations. With emphasis on governance, it’s an ideal platform for managing multitudes of contractors, vendors, and other players within your company.
- Dell BOOMI: Recent entrant to the MDM space, this platform is agility focused. It serves as an integration hub for all contractor and vendor management software types, bringing crucial information together in one place for better oversight.
With the right MDM system, accurate contractor and vendor data, and a thorough understanding of how to issue the correct 1099, oil and gas companies can better protect themselves from tax and accounting mistakes.