One of the most challenging aspects of complying with IRS (Internal Revenue Service) tax regulations is understanding the complex rules for government reporting and information returns, which are subject to annual revisions.  For example, new IRS 1099-MISC and 1099-NEC instructions for tax year 2020. OtterTax solves this conundrum by applying a technology-based solution that translates IRS tax publications into thousands of automated system validations, designed to ensure the highest level of business compliance with IRS and Social Security Administration (SSA) regulations. Additionally, the OtterTax validation engine performs field-level audits and provides detailed reporting on any items needing attention.  Several types of validation rules are built into the platform, some of which include:

  • Type verifications.  Type verifications identify data entry errors by inspecting data within each form box/field to ensure that it matches the expected type.  For example, a dollar amount cannot be entered in a checkbox and a number cannot be entered as a name.  Type verifications also ensure that addresses are correctly formatted and that name fields include a first name and last name.
  • Format verifications.  Format verifications ensure data compliance with specific formatting requirements.  For example, ZIP codes have an expected five or nine digit length, and Social Security Numbers must be exactly nine digits long. Additionally, the engine performs checks on obscure fields such as form W-2 verification codes and Global Intermediary Identification Numbers (GIINs) on form 1042-S.
  • List verifications.  IRS and SSA forms contain many fields that must be completed using a value from a defined list.  Examples include box 12 on form W-2 and distribution code boxes on forms 1099-Q, 1099-R, and 1099-SA.  The validation engine ensures that all values entered in such code boxes are permitted per regulations.  Codes I and O, for example, are prohibited in box 12 on form W-2, and only number 1-6 is permitted in the distribution code box of form 1099-Q.
  • Codependent validations.  Certain tax forms include rules having multiple field interdependencies.  For example, whenever the The Foreign Account Tax Compliance Act (FATCA) checkbox is ticked on forms 1099-DIV, 1099-INT, or 1099-MISC, then an account number must also is provided.  Codependent validations also ensure that one and only one multiple-choice value is completed where appropriate.  For instance, only one type of individual retirement account (IRA) can be selected on form 5498 (IRA Contribution Information).
  • Complex validations.  Complex validations are uniquely different from other validation types as they generally do not follow a particular pattern. For example, on IRS form 1099-R box 7, a distribution code combination of ‘7D’ is allowed, while combination ‘7E’ is not permitted per IRS rules.  Another example is form 1095-C, where a required contribution from an employee can only be completed when an appropriate offer of coverage code has been specified.
  • Custom validations.  Many organizations have unique compliance-related requirements that are specific to their industry or business model. OtterTax recognizes these needs and offers custom-designed validations based on individual customer requirements.

The road to tax compliance for any organization takes a commitment, but it doesn’t have to be complicated. For more information about how OtterTax can help, call 800.957.1585 or email