Questions and Answers from November 28 National Phone Forum

Estate and Trust

1. Are estates and trusts required to issue Form 1099-Misc to executors, trustees, accountants and lawyers if they are not conducting a trade or business but only conducting estate and trust services?

Yes. The instructions for Form 1041 read:

You may have to file these information returns (Forms 1099-A, B, INT, LTC, MISC, OID, R, S, and SA) to report acquisitions or abandonments of secured property; proceeds from broker and barter exchange transactions; interest payments; payments of long-term care and accelerated death benefits; miscellaneous income payments; original issue discount; distributions from pensions, annuities, retirement or profit-sharing plans, IRAs (including SEPs, SIMPLEs, Roth IRAs, Roth Conversions, and IRA recharacterizations), Coverdell ESAs, insurance contracts, etc.; proceeds from real estate transactions; and distributions from an HSA, Archer MSA, or Medicare Advantage MSA.

2. Qualifying payments made to an estate have to be reported on a 1099-M. The W-9 form only requests identification of sole proprietor, partnership and LLC filing status. How do we know if the payee is an "estate"?

There is a check box for “Other.” You could also ask them.

3. If an individual dies and their estate pays legal and professional fees, executor fees, etc., but is not in a business, is this estate required to file Form 1099-Misc for these services? See answer to Q/A-1 above. And a second question: if the estate was small enough to not be required to file a 1041 or 706 and therefore did not get a separate tax ID number, whose ID number should be used to report the legal fees (possibly the executor who paid the fees)?

You must get an EIN for the estate.

4. 1099-Rs - Must they be filed for direct roll-over from Trustee to Trustee?

Direct rollovers are reported, however, a trustee-to-trustee transfer is not. See the Instructions for Forms 1099-R and 5498 available at www.irs.gov.

5. I would like to know if estates and trusts are required to file 1099MISC.

See answer to Q/A-1 above.

6. We serve as Trustee of various trusts and occasionally as executor of estates. I have read the 1099-Misc instructions these past few years and remain confused about the proper way to handle the following issue. If I missed something in the instructions that answers these questions, please let me know where I can find the information.

Trusts and Estates are technically not "businesses" although they are assigned business EINs. But they also are not individuals.

Concerning reporting on a 1099-Misc to attorneys for payments that trusts and estates make to attorneys, I have the following questions (assuming in all cases that the payments discussed are over $600):

6.a Are trusts and estates considered "trades" or "businesses" for 1099-Misc reporting purposes for payments the trust or estate make to attorneys for legal services rendered to the trustee/trust or executor/estate? In other words, are those payments considered as being made in the ordinary course of conducting a trade or business?

See answer to Q/A-1 above.

6.b If we, as co-trustee of a trust, make a payment to an attorney who serves with us as co-trustee of that trust (i.e. the payment is a "co-trustee fee", NOT a legal fee), is the trust required to report that payment on a 1099-Misc under that Trust's EIN? It seems that co-trustees would not be required to report payments made to each other, but if the co-trustee is an attorney, I'm not sure what would apply in this case. If amount is over $600 then the trust would issue a MISC to each executor/co-trustee.

Report the amount in box 3.

7. Do estates & trusts have to issue Form(s) 1099s for the following payments made during 2007:

1. executors & trustees 2. accountants 3. attorneys

I wanted to indicate that the applicable estates & trusts making these payments are not running any business operations.

See answer to Q/A-1 above.

8. Are trustees fees and executor commissions paid to individuals

subject to self employment tax, if they are not in the business of acting as

trustees or executors? No. Then, if not, should their payments be reported

in Box 3 rather than Box 7?

Yes.

9. Are attorney’s fees paid by an estate of trust for professional services

rendered subject to 1099 reporting by that trust or estate, and if so, should

they be reported in Box 7?

Yes.

10. We would also like to know about the issue of the Estate or Trust

having to file 1099’s.

Estates or trusts must follow the requirements for information reporting just as other entities. See the Instructions for Form 1041 available at www.irs.gov.

11. Are estates and trusts required to issue Form 1099-Misc to

executors, trustees, accountants, and lawyers if they are not conducting a trade or business but only conducting estate and trust services?

Yes. Thank you. You are welcome.

Attorneys – Public Defenders

12. We have contracts with public defenders to take on cases for the court system to defend low income defendants. Would those payments be considered box 14 or 7 payments?

Box 7.

13. If you receive a 1099 that does not report the information in the correct box should we contact the issuer and have them correct the 1099. We are a law firm and many of the forms we receive are box 7 or box 3 instead of box 14.

YES.

14. Can you talk a little more about Gross Proceeds to an attorney, can you give us an example of when an attorney would have to file this form and use box 14?

See the Instructions for Form 1099-Misc available at www.irs.gov; also see Regulations section 1.6045-5 which are available via the same website. For the regulations enter “Tax Regulations” in the upper right corner.

15. I am unclear as to which box attorney’s fees are to be reported. I am clear as to settlement payments are reported in Box 14. In daily business, are the fees paid during the calendar year reported in Box 7?

YES.

See the Instructions for Form 1099-Misc available at www.irs.gov.

16. So if an attorney is hired to sue a client to collect a debt, does that have to be reported?

If the attorney is paid over $600 then the reporting would be required under section 6041.

17. If a payment is made to an attorney (assuming the total paid in a year exceeds $600) will it always have to be reported on form 1099?

Yes.

And then the only remaining issue is the one of where on the 1099-Misc?

If you are paying the attorney for fees he/she charges for legal services, the amount is reported in Box 7.

18. My question is pertaining to Attorney fees. Do individual who pay for personal legal services, such as divorce or estate work have to file a 1099 if they pay more than $600.

An individual is not in a “trade or business” and therefore is not required to file Form 1099-Misc for legal services. However, an estate that hires an attorney may have to file. See Q/A-1 above.

19. I am a bookkeeper for a law firm. I want to be sure I understood correctly that I should be completing a 1099-Misc. for the rent the firm pays for its office space, and also for the copy and fax machines that are leased, and that the amount would be entered into Box 1 of the 1099 Misc.

That is correct.

Also, under what circumstances do I need to provide a 1099 to another law firm? If I write a check to another firm "as attorneys for..." and the money is clearly not fees, do I still need to provide a 1099?

Need more information to answer. Contact the information reporting call site at 1-866-455-7438.

20. I am still not clear about the payments to attorneys.

So if an attorney is hired to sue a client to collect a debt, does that have to be reported?

If a payment is made to an attorney (assuming the total paid in a year exceeds $600) will it always have to be reported on form 1099?

And then the only remaining issue is the one of where on the 1099-Misc?

Payments to attorneys for legal services of $600 or more are reported on Form 1099-Misc, box 7.

21. If the payer is a law firm and they have received proceeds from a

successfully litigated class action settlement, are they required to issue 1099 forms to the people whom they have forwarded the proceeds to? Does it matter whether the settlement is taxable or not taxable to the recipient? The insurance company issues the 1099s; sometime to both the claimant and the attorney.

See Regulations section 1.6045-5.

22. What are the rules for sending 1099s to a LLC, Attorney and Drug

Testing company?

Refer to the Instructions for Form 1099-Misc available at www.irs.gov. Also, you may call the information reporting call site.

23. If an attorney has an escrow account and payments are made to other

attorney’s from proceeds to a client, who would issue the 1099?

The attorney who makes the payments from the escrow.

24. We have contracts with public defenders to take on cases for the

court system to defend low income defendants. Would those payments be considered box 14 or 7 payments?

Box 7

Corporations

25. Is a S-Corporation treated as a “Corporation” when determining whether or not a 1099 should be issued?

Yes. The entity is a C-corp that makes an election to be treated as an S-Corp. When completing Form W-9, the S-Corp checks the box for a corporation.

26. A corporation in the trade of business paying a janitorial service as

an individual name payee would require a 1099 or not?

Yes if over $600; report in box 7.

27. A couple of items, first I attended a seminar by American Payroll

Association a couple of weeks ago and it was mentioned that there is

A proposal in congress to make issuing 1099-Misc to ALL entities including Corporations for ALL services and the threshold was still

$600.00. IF you have a way to get your voice heard, please suggest that they at least raise the threshold.

It’s not law yet but is still under consideration.

28. During the question and answer portion of the 1099 phone forum

a reference was made that an S-Corporation may not be a corporation for 1099’s purposes. I reviewed the 2008 IRS instructions for Form 1099-Misc and do not see a reference made to S-Corporations.

Is a S-Corporation treated as a “Corporation” when determining whether or not a 1099 should be issued? Yes.

29. I have run into a few situations where small businesses purchase

the interest of their former shareholders or partners. When this happens the former owner’s interest is sometimes reacquired by the corporation or partnership.

Can you please address in the instance of a corporation which buys back the stock of a former shareholder? How are the payments (ignoring any interest issues) paid to the former shareholder to be reported if the corporation continues to exist? What if the payments are a function of future revenue and payable annually as an earn-out that was not for the former owner’s services performed in the current year?

There are too many complexities in the above question to give a simple answer. The treatment depends on how the redemption is handled. You might want to look at Pub. 544, Sales and Dispositions of Other Assets, as a start.

30. In what instances are Corporations exempt from 1099s? They are not an exempt payer, but can be exempt recipient.

See the Instructions for Form 1099-Misc which discusses the latter available at www.irs.gov

31. If a company has a DBA name and they list themselves as a

Corporation, is it correct they do not need a 1099?

For example:

Match Software dba ABCWare, LLC and the “Corporation” box is checked.

Cutlip Enterprises Inc dba Dreaming and Achieving and the “Corporation” box is checked

Bada Bing Inc t/a Carmines Italian Market & Café and the “Corporation” box is checked

It depends on the type of payment. Corporations are exempt recipients but a 1099-Misc may be required under certain circumstances. See the Instructions for Form 1099-Misc available at www.irs.gov for information.

32. Our firm is an LLC and files as an S-corp, do our clients need to prepare

1099's for our services? We have reviewed the 1099 directions and are still unclear about the S-corp distinction. Also the new W-9 does not have S-corp as one of the tax classifications to enter for an LLC.

An S-corp is a corporation for information reporting purposes. Depending on the type of service you provide, your clients may need to send you a 1099. Refer them to the Instructions for Form 1099-Misc for information on when a 1099 is required for corporations.

33. Do we need to send 1099’s to Corporations?

See the answer above.

34. A corporation in the trade of business paying a janitorial service as an

individual name payee would require a 1099 or not?

Yes if over $600; report in box 7.

1099 Forms -

35. Do we have to issue a 1099 for mileage and per diem reimbursements for employees and/or nonemployees?

Depends if there is an accountable plan. See Pub. 463 for more information.

36. (name Matching) If a sole proprietor has a dba name, and the payments are made out to the dba company, do we use the company EIN number or the name of the sole proprietor on line 1.

I thought if we used their SS# on form 1099Misc, then their 1st name should be listed on line 1 of the name section. If we used their EIN number, then their dba name would be listed 1st and then their individual name listed next.

Which is the proper way to complete the 1099misc?

The sole proprietor’s name goes on the first line, the DBA goes on the 2nd line; this is true whether the EIN or SSN is used.

37. I have a bank client. Their question to me is "Can we only send Form 1098's to people with the interest paid for their primary residence?" They want to avoid sending forms to people with 2nd homes, agricultural land, rental property, vacation property and so forth. I believe they must send forms to any individual or sole proprietor owner when they have a mortgage on real property.

The law requires a person in a trade or business who receives from any individual interest of $600 or more during a calendar year on a mortgage to file Form 1098. So if an individual has a mortgage on a “2nd home, a rental property, vacation home, etc.” then the filing is required.

38. Form 1099-A - for investment property. If an individual invested a large sum into an investment that failed and has no recourse for any reimbursement how would they receive a 1099-A or would they be able to claim an ordinary loss on a different form? How do they report this investment loss (not a capital loss)?

They receive the 1099-A from the lender. They may be able to claim a loss but must be determined based on the adjusted basis in the property. Refer to Pub. 544 to a worksheet to help you determine gain or loss. Such a loss is reported on your income tax return.

39. Is there any exemption on issuing a 1099-Misc to minors who are being paid to distribute and/or solicit newspaper subscriptions?

If the payment is $600 or more to any individual, then the form is required to be filed.

40. Is there a payment limit on attorney’s like $600 or is any amount paid to an attorney reportable?

The $600 thresh hold applies. See the Guide to Information Returns in the General Instructions for Forms 1099, 1098, 5498, and W-2G at www.irs.gov.

41. When a business makes a payment for the benefit of an independent contractor service provider, but makes the payment to a third party rather than to the independent contractor, to whom should the business send the Form 1099-Misc - to the third party, or to the independent contractor?

Who was hired to do the work? If the business hired the IC, then the 1099 is issued to the IC. If business hired the 3rd party, then the 1099 would be issued to the 3rd party who then must issue a 1099 to the IC. Report the income to the actual owner of that income; Regs. Section 1.6041-5. So, if the IC asked you to send the payment to the 3rd party, it is still his income; sent the 1099 to the IC.

42. I'd like to ask you about 1099 INT. Does Box 1 amount include Box 8 amount?

No. Box 8 is tax-exempt interest (such as on a municipal bond) while box 1 is ordinary interest (such as you get on a savings account)

I am also interested in the question about a small business needing to cut a 1099 to a supplier.

There is no reporting requirement for purchases you make from a supplier.

43. If a home owner pays over $600 during a year to a housecleaner or a gardener (independent contractor who does many other places with only limited direction, etc.), do they have to cut a 1099?

Generally yes. But be careful that this person is not your employee. See Schedule H (Form 1040) to see if you must file to find out about this requirement.

44. 1099-Misc - What is the IRS code section that explains the requirements for filing Medical and Health Care Payments in Box 6?

Section 6041. Also see Rev. Ruls. 69-595 and 70-608.

45. Question regarding what to include in the amount in box 7, 1099 Misc. Should we include purchase of product and labor or labor only?

Labor or service type industries only. See Revenue Procedure 2004-43.

46. We pay a temporary worker company (not corp.) for temp workers, are we required to report payments to the company on form 1099M?

Yes.

47. Is use of 1099-C permitted for reporting business accounts receivable that cannot be collected? ? ?

No. This is not cancellation of debt but loss of income.

48. Does 1099-Misc reporting, Box 14 include Lab fees paid by a non-profit hospital to an LLC (taxed as partnership) for medical lab testing or diagnostic imaging processing (MRI/x-ray developing)?

Report the amount in box 6 to the LLC.

49. I didn’t have the slides when you were talking about the 1099 Misc – employees serving in Armed Services. Is there a box on the 1099 Misc for reporting wages paid under those circumstances?

Report in box 3. These payments are not subject to FICA or FUTA taxes.

50. If a scholarship is reimbursed directly to the individual, do they need a 1099?

No.

51. When paying an IC, we also reimburse for travel, meals, etc. Should all monies paid be 1099’d, or do we need to manually separate out the reimbursements and only report the dollars for services?

Any payments of $600 or more for services would be reportable. As to the reimbursed amounts, it depends on whether there is an accountable plan. See Pub. 463, page 32, for more information. The publication is available at www.irs.gov.

52. 1099 MISC.

· Are premium payments to insurance agencies/companies reportable? No. And if so which box.

o Umbrella coverage

o E&O/D&O

o AD&D

o Employee Health

· Media agencies that buy advertising for us for TV, radio or print. I assume yes box 7?

Yes. In this case you are paying for services rendered. In the first instance above, that is not the case.

53. 1099 C.

In reading the instructions I get the impression that only financial or lending companies can submit a C for forgiving a debt.

Anyone in the business of lending money on a regular basis may be required to issue a Form 1099-C including certain government agencies.

54. We are a franchise company and on a few occasions we loaned money to some of our franchisees, either cash or payments to their debtors, to help them over rough times. The terms were ‘due upon sale or closure of the store’ and in some cases we will forgive the debt. I would like to report this but I don’t know that a 1099C is appropriate since lending is not a significant part of our business.

You are correct; it is not appropriate.

55. If it is reportable on a form C, does it still apply if the store owner files bankruptcy?

NO.

56. My question is regarding the 1099-Misc,

We have a client that is a veterinarian and pays vet labs for testing. Would this require being reported as a medical payment in box 6?

Yes.

57. How do we handle on services completely outside the regular scope of services performed by an employee such as special non-accounting related project (service could have been preformed by any outside contractor) vs a routine bookkeeping service? Do we have conflicts with SE tax? Or, a simple1099 for the extra service will serve this extra compensation.

Uncertain as to who is being paid. Recommend calling the Information reporting call site at 1-866-455-7438.

58. Would you please explain to me the difference between 1099-INT and 1098.

Form 1098 is used to report mortgage interest only. Other types of interest such as amounts earned through financial institutions are reported on Form 1099-INT. The latter is income to the recipient of the interest; the first is information for a deduction (Sch A, Form 1040) of the amount of interest paid. Also, see Pub. 525, Taxable and Nontaxable Income, available at www.irs.gov.

59. I have a client who sells race car shock absorbers. In order to entice different drivers to use their shock absorbers, this client gives contingency prizes and awards to these drivers if the drivers use one of their shock absorbers and place in a certain rank in races. These drivers to do not otherwise perform any services for my client. We have been reporting these awards in box 3 of Forms 1099-Misc. Is this correct?

Yes.

60. In preparing 1099-Misc forms for different clients in different industries, I have generally reported all payments made to a sole proprietor, partnership or llc if they exceed $600 during the year, regardless of whether there are reimbursements for expenses or materials involved. Particularly if we are talking about construction contractors. I have had the payees contact my clients stating their accountant objects to any payments other than fees for labor being reported and it is incorrect to report anything other than labor in box 7. I have taken the position that if the subcontractor or contractor has turned in original receipts for reimbursement of travel or other expenses, then perhaps this may be warranted but otherwise all payments should be reported and corresponding expenses for travel, materials should be claimed on the payees returns. I have otherwise seen construction contractors claim only 1099 income and then try to claim expenses that were reimbursed by their client (materials, etc.). Should all amounts, including reimbursed expenses be included in 1099-Misc or is it labor only?

The payment for the services are reportable in box 7. The amount charged by the contractor should take into account his materials and labor. If there are separate amounts reimbursed, then whether they are reported depends on whether there is an accountable plan. For more information see Pub. 463, page 32.

On a related note, another of my clients purchases promotional materials and t-shirts as uniforms from a sole proprietor who has refused to return a Form W-9 because in his opinion he sells mostly merchandise and in his understanding that isn't required to be reported. Only services are and graphic services are not separately billed from the T-shirts. Are these payments reportable to him?

Tentatively, yes. I agree he is supplying materials, but if he is putting the logos on those t-shirts, etc., then that is a service he is selling. If the latter applies, your client may have to backup withhold on any amounts paid if the sole proprietor refuses to give you his TIN. The cost of the t-shirts should be included in his fee that he charges you.

61. On the name what if a person only gives you a company name? Can you report this 1099 only with the company name or do you need the name of the person?

If you are asking about a sole proprietor, then you need the person’s name and SSN; enter the person’s name on the first name line. You may show the “doing business as” name on the second name line. However, if the “company” is a corporation, depending on the type of payment, you may not have a reporting requirement. See the Instructions for Form 1099-Misc available at www.irs.gov.

62. Is there a limit on the amount of interest income? I have an issue with one of my co-workers in regards to this question.

I feel we should report all interest income, she feels we are only to report income over $600.00.

The 1099-INT specific instructions read:

For more information see the Instructions for Forms 1099-INT and 1099-OID available at www.irs.gov.

63. What are the purpose for someone to do 1099c do they get the money back after it it is file what happens and when the customer get 1099 c where do they report it on the 1040.

Form 1099-C is used to report cancellation of a debt. Persons who are required to file are certain government agencies, financial institutions, or anyone in the trade or business of lending money on a regular basis. The person receiving the Form 1099-C may have to report the cancellation of debt in income. See Pub. 544, Sales and Other Dispositions of Assets, for more information. Pub. 544 is available at www.irs.gov.

64. I would like clarification on the 1099-Misc reporting for suppliers. The way I understood the forum, supplies paid by a sole proprietor would issue 1099 to vendor. For example, we have a construction contractor, buys lumber/metal/etc from vendor; builds structure or remodels structure---does that contractor 1099 the vendor if it is not a corporation that supplied him the materials--there is no labor involved? This contractor has always issued 1099 MISC for subcontractors such as plumbers or electricians & included materials and labor in Box 7. Is this correct or should the 1099-Misc have the total in Box 7 with Box 9 checked if over $5000.

I agreed to research the issue further during the forum. If you purchase supplies from a vendor, you do not issue a Form 1099-Misc to that vendor. If you hire a contractor to do work for you or you hire someone to provide a service, then you issue Form 1099-Misc to the contractor; report the amount paid in box 7. Box 9 should only be checked for direct sales. Direct sales are sales by a person other than through a retail establishment to a consumer; the person does not have to take ownership of the product for before selling it for this to apply. However, you would not check box 9 in your example.

65. We sell crop insurance to our customers but are not the underwriter of

the insurance. We have some situations where due to an error or omission on our part the customer ends up receiving less for a claim than they might otherwise receive. Consequently, we end up making a compensatory payment to the customer. Is this amount reportable on 1099-Misc or any other information reporting form? If on 1099-Misc in which box would this payment be included?

For this and the item directly below, contact the information reporting call site for assistance at 1-866-455-7438.

Same facts as above except that in this example no payment is made to the customer. In this example the insurance premium receivable from the customer is reduced to compensate the customer for the error or omission. Is this amount reportable on 1099-Misc or any other information reporting form? If on 1099-Misc in which box would this payment be included?

66. In one part of our business we make loans to farmers and ranchers that are originated through a network of farm equipment dealers. The salesmen who are employees of the dealership receive a small incentive payment from us when they originate loan or lease business for us. When these incentive payments accumulate to $600 or more in a year is this amount reportable on 1099-Misc or any other information reporting form?

Yes.

If on 1099-Misc in which box would this payment be included?

Report in box 3.

67. Taxpayer received 1099A now on which line should I report this income on form 1040????

It is not directly reported. The information given is for you to figure any gain or loss. See Pub. 544, Sales and Other Dispositions of Assets, available at www.irs.gov.

68. On Form 1099 Misc - box 6 & box 7 - as a self employed individual - if I claim expenses in schedule C relating to medical payments or attorney fees - is it mandated that I issue a 1099 to the entities that make up my deduction totals?

If, in the course of your trade or business, you pay certain fees for medical payments (related to your trade or business or hire an attorney and pay him legal fees, and these amounts are $600 or more, you are required to file Form 1099-Misc.

69. On Form 1099- MISC - Box 7 Independent Contractors- Payment of services- Is there a definition of what exactly is a service? For instance-
Would the following payments be considered payments for services-
Payment to a Caterer to cater a company picnic? Yes.
Payment to a newspaper to run a want ad? No.
Payment to a printer to print a brochure/ or advertising flier? Yes.
Payment to a hotel for rooms for business guests? Yes.
Payment to a florist for flowers and delivery? No.
Payment to a golf course to play rounds of golf? Yes—public.
Dues payment to be a member of an association with a monthly news letter? No.

It would help if there would be a better definition of "services" in the instructions so that companies would be better able to report exactly what the IRS would be looking for, and also to consider areas that may be overlooked.

See Rev. Proc. 2004-43, 2004-31 IRB 124, for merchant categories and whether reporting is required under sections 6041/6041A. You will find the Rev. Proc. on page 124 of the Internal Revenue Bulletin 2004-31 at
http://www.irs.gov/pub/irs-irbs/irb04-31.pdf

70. 1) With the new law going into effect next year regarding 1099B - security sales, will the 1099B form be changed to disclose (even on a supplemental schedule) cost basis for individual securities sold for which the gross proceeds are shown?

The requirement to report basis is in proposed legislation which has not become law. If and when the reporting becomes law, we would revise the form. However, the proposed legislation states that reporting would be on stock purchases after a given date.

2) Regarding the 1099-Misc, why for box 7 - Nonemployee Compensation isn't it broken out amounts subject to SE tax vs amounts NOT subject to SE tax? I believe that segregating that information would greatly assist preparers in preparing returns for such clients.

Box 7 amounts are subject to SE tax.

3) Regarding 1098-INT - Would it be possible to modify the reporting system by the lending institution whereby when the loan proceeds are taken, some administrative compliance questions are asked such as the purpose of such loan and use of proceeds. This would enable the breakdown of the 1099-INT to show the deductible portion, non-deductible portion, investment interest portion, etc - rather than either the client or the preparer guessing at the proper allocation.

Any changes to what is reported on Form 1099-INT would need changes to the regulations or other guidance requiring such information.

4) Regarding the e-filing of 1099s - is there a prescribed way (similar to e-filing 1040s through Form 8279) to obtain the client's authorization for e-filing the data? Otherwise, the IRS is once again placing the responsibility of FILING on the preparer rather than the taxpayer. I have not heard any discussion relative to this issue.

Section 6011(e)(2) of the Internal Revenue Code requires use of magnetic media/electronic filing for 250 or more of the same type of information return. You do not need permission to file electronically. Unlike income tax returns, there is no other document or form required. Ultimately, the responsibility of correctly filed returns lies with the “person” who is required to file. You do need to obtain a Transmitter Control Code (TCC) before you file information returns electronically. Submit Form 4419 to do this.

For return preparers, the IRS has recently issued Notices 2008-11, 2008-12, and 2008-13 regarding return preparer penalties under sections 6694 and 6695. Notice 2008-13 (available via electronic media) discusses how a preparer filing or using information returns to prepare other returns may be subject to section 6694 penalties. These notices will be available in the Internal Revenue Bulletin at a later date.

71. I would like to know the answer to the question about sending 1099's to suppliers of goods/supplies. I had previously understood that 1099's were only required for services. Also, regarding 1099 Misc for rents, did I understand you to say that this includes rental of equipment, and would this also cover leases on such things as copiers?

See Q/A-64 above. As to rents, payments of $600 or more for rental of equipment and leases of equipment.

72. An answer was given that a 1099 would be issued to a provider of goods if that amount is in excess of $600. That is wrong.

I agree. See Q/A-64 above.

73. As a CPA, every January I'm asked to prepare 1099-Misc for clients who have used independent contractors and have paid them $600 or more during the year. When I go to prepare these forms, I discover that the client may not requested signed W-9 forms from their independent

contractors. When the client tries to get this information

(especially the SSN), the independent contractor either has left town or else doesn't respond.

Should I then prepare Copy A of the 1099-Misc and leave the SSN and address blank for the client to fill in manually if they ever get this missing information? If I do that, I'm afraid that the client won't send in Copy A to the IRS by the filing due date.

Copy A should be filed with whatever information is available. A W-9 request should be made when the contractor is hired. Also, backup withholding applies; see Form 945 and its instructions available at www.irs.gov.

74. Is there still a penalty fee for the client of $50 per 1099-Misc for each missing independent contractor's information?

See Pub. 1281 for more information on solicitation requirements of TINs also available at the above web address.

What action does the IRS recommend for tax practitioners in such a case?

File Copy A; send Copy B to the last know address (phone book, receipts, etc.).

75. Regarding debt write-offs: a medical laboratory that does work for a

hospital, but bills the patient directly. The hospital informs the Lab to write-off certain patient payables due to information regarding patient’s inability to pay. Does the Lab need to issue a 1099C or a 1099MISC to patients for debt written off over $600?

These are not cancellation of debt for Form 1099-C purposes. Do not file.

76. I have a couple examples that I would like you to comment on. This is related to Page 6 of the 1099-Misc instructions.

If a car repair shop sends out work to another shop, would the entire amount paid that shop, if over $600 for the year, be treated on the 1099? I do not understand the 4th bullet under the examples. How would it be reported on the 1099 in the examples below?:

Ex 1 Labor was 70% of the total bill with parts 30%

Ex 2 Labor was 30% of the total bill with parts 70%

Ex 3 Labor 90% and parts 10%

Ex 4 100% parts

Ex 5 100% service (Labor)

Ex 6 Parts and Service combined with no breakdown on the invoice to the car repair shop?

Regardless of the breakdown of the costs, you issue the 1099-Misc for the full amount you pay in box 7 (parts and labor). The subcontractor then reports the cost of the parts as an expense in his books.

77. How would a bar treat the payments over $600 paid to a band for entertainment?

Report the amount paid to the band on the Form 1099-Misc in box 7.

78. Does 1099-Misc reporting, Box 14 include Lab fees paid by a non-

profit hospital to an LLC (taxed as partnership) for medical lab testing or diagnostic imaging processing (MRI/x-ray developing)?

It’s box 6, and yes reporting is required.

79. The questions involve Form 1099-C and relate to screens 14 and 15 of the presentation. I work for a state unemployment security department. We disperse funds to qualified unemployed individuals. At times, the claimant may have been overpaid for one reason or another. This overpayment is considered a debt the claimant owes the state. We do cancel overpayments if the claimant files for bankruptcy. Do we need to send in a Form 1099-C for each overpayment cancelled due to bankruptcy? If so, is this just for those cases that are $600.00 or more?

Contact the information reporting call site.

80. When you have a sole proprietor who also has an EIN for his business,

what number do you put on the 1099 – his personal social security number

or the business EIN?

Either can be used, but put their name on the first name line and the dba

name on the second name line of the form.

81. Are federal withholding tax going to be required for independent

contractors that receive compensation in box 7 non-employee

compensation? If so, when?

Backup withholding applies if they don’t supply their TIN. See Backup

Withholding in the General Instructions for Forms 1099, 1098, 5498, and W-

2G.

82. A question raised when I heard the HSA payments mentioned. We

have been reporting these on our W-2's with the W code. Did I hear

correctly that they are now to be reported on a 1099misc? When might this

be the case?

Forms 1099-SA (distributions) and 5498-SA (contributions) are used. See

the Instructions for Forms 1099-SA and 5498-SA available at www.irs.gov. I

also mentioned the Payments Chart in the back of the General Instructions

for Forms 1099, 1098, 5498, and W-2G that was provided during the forum materials.

83. Also at this seminar an attendee said that she issues 1099-Misc to

hotels that her employees stay at while attending seminars, because

She considers it ‘services’. Would hotels (if non incorporated) be required to receive a 1099-Misc (if meeting the $600.00 threshold)?

Yes. See Revenue Procedure 2004-43.

84. Is the IRS considering the masking of TIN on the forms issued to the recipient?

This change is being considered but currently the full TIN is required.

85. Are individual taxpayers and companies required to issue a form

1099-Misc to every entity they pay $600.00 per year to? If not, what are

the exceptions?

Generally, the criteria for filing are: you are in a trade or business and pay

$600.00 or more for services. See the Instructions for Form 1099-Misc

available at www.irs.gov.

86. I believe that Congress will be voting about issuing 1099's

to Corp payees. Do you think this will pass and will it be effective for 2007?

There are many issues revolving around this issue. It will not be effective

any time soon.

87. If an employee embezzles funds, does this get reported on a 1099? If

so, which one and which box? Would it be the 1099-Misc box 3 (Other

income) or box 7 (nonemployee compensation)?

This is not a payment. No 1099-Misc requirement.

88. Some of our clients are paying for a website design and for monthly

hosting service, does that require a 1099?

For the web design, yes; if hosting service is computer network service then no. You may call the information call site and have them check Revenue Procedure 2004-43.

89. Do non-profit organizations who file under a section 501(c) need to

provide 1099's for their vendors?

Yes for services rendered over $600.

90. Is the IRS still looking at extending the mailing deadline for 1099s

from January 31 to February 15?

There is no truth to this rumor.

91. In filling out a 1099 Misc to report rental income - for example, a

rental of equipment, does one include the sales tax charged?

Yes the whole amount paid.

92. I attended another 1099 instructional session & the speaker said to

include the sales tax in the 1099. That didn't sound right to me. How could any matching take place since the payee reports the net?

The recipient would report the entire amount as gross income. The sales tax is a deduction to arrive at net income. Any difference that would be questioned by the IRS would require an explanation from the recipient.

93. Is reimbursement for mileage and travel expenses to non-employees

1099 reportable?

We’d need more information to answer your question. It depends if it is an accountable plan. See Pub. 463 for more information.

94. Can you please summarize this again please? Box 14 vs. Box 7

Box 7 is to report fees for services while box 14 is used to report gross proceeds paid to attorneys generally for settlement payments involved in law suit.

95. You used to have a Publication called "Instructions for Forms 1099,

1098, 5498, and W-2G"

I still have a 2004 edition but this publication does not have a Pub number. Question: Is it still printed each year? No.

Can you give me the Pub number?

I tried to order it for 2005 and 2006 over the phone, but I was told that there is no such pub. I think the problem was that I did not know the Pub number and they (Pub & Forms order dept.) could not help me without it.

We no longer publish the Instructions for Forms 1099, 1098, 5498, and W-2G that included all the 1099 instructions plus the general instructions. You need to order each set of the instructions you need separately. Be sure to order the General Instructions for Forms 1099, 1098, 5498, and W-2G as well each year. These instructions are also available online at www.irs.gov

96. Employer reimburses employee business expenses under an

accountable plan. The reimbursement is a flat amount and the employee gives an accounting to employer monthly and is required to return any excess to employer at that time.

Question: is the employer required to report this on a 1099-Misc in other income section to the employee?

No 1099 filing requirement; this is a W-2 issue. For employees, 1099s are not applicable. See Pub. 493 for more information on accountable plans.

97. I am a service business (CPA firm) and have cabinets made and

installed in my office. Am I required to issue a 1099 to this company (one member LLC)? I know that if I contract with another person to do payroll taxes, for instance, that a 1099 must be issued because it is in the line of my business. But I am not in the business of making cabinets or as another example window washing.

You have no 1099 filing requirement for the purchase of the cabinets.

98. Do we have to submit a 1099 for mileage and per diem reimbursements?

It depends on whether there is an accountable plan. See Pub. 463 for more information.

99. When a business makes a payment for the benefit of an independent

contractor service provider, but makes the payment to a third party rather than to the independent contractor, to whom should the business send the Form 1099-Misc - to the third party, or to the independent contractor?

See Q/A-41.

100. I'd like to ask you about 1099 INT. Does Box 1 amount include Box 8

amount?

No. Box 8 is tax-exempt interest; box 1 is ordinary interest. See your income tax return instructions.

101. We pay a temporary worker company (not corp.) for temp workers,

are we required to report payments to the company on form 1099M?

Yes.

102. Is use of 1099-C permitted for reporting business accounts

receivable that cannot be collected? ? ?

No. Your are not in the business of lending money as a significant trade or business.

103. My question is regarding the 1099-Misc, We have a client that is a veterinarian and pays vet labs for testing. Would this require being reported as a medical payment in box 6?

Yes. See Revenue Procedure 2004-43.

104. If you receive a 1099 that does not report the information in the

correct box should we contact the issuer and have them correct the 1099. We are a law firm and many of the forms we receive are box 7 or box 3 instead of box 14.

I recommend that you ask for the correction.

105. Box 3 vs. Box 7:

Which Box should “guaranteed payments” be reported in to a

individual 32.22% owner/shareholder of an S-corporation (non-employee).

Box 3.

Penalties – Notices

106. If we get 972 or CP2100 notices of penalties for 1099-M reporting

and we follow all IRS procedures, including sending B notices, does IRS waive the penalties? Are there any instances in which IRS will not waive penalties even though all procedures and necessary steps have been followed in response to these notices?

Penalty may be averted if you can show reasonable cause. See Part O. Penalties in the General Instructions for Forms 1099, 1098, 5498, and W-2G and Pub. 1281 both available on the IRS website at www.irs.gov.

107.We have a client that issues a 1099-Misc to a person for pasture

rent, he has received a TIN discrepancy letter for 2006. He has verified that it is the correct name and SSN, therefore we believe he should withhold 28% of the payment if there are any more for 2007.

If the TIN is correct, then follow the instructions in Pub. 1281 regarding B Notices.

However we believe to do this he must have an EIN # for a coupon book & to send the IRS its money and file a 945 yearly form. He has prepared his own 1099-Misc using his social security number since he doesn’t have a business but he is a farmer. Does he even need to send a 1099-Misc form out?

Yes if the amount of the rent is $600 or more then there is a filing requirement because his trade or business is farming.

How does he send the backup withholding to the IRS if required?

Generally, in order to pay backup withholding using the coupons (Form 8109) or electronically using EFTPS, he will need an EIN. You can go to www.irs.gov and apply for an EIN online.

108. A client received a notice re: 2006 1099's. After researching our

records, the recipient’s tin # was reported incorrectly. As I read the notice, it states not to contact IRS or send a B-Notice to the payee. So, I do not have to send a corrected 1099 for this?

Do a correction as described in the General Instructions for Forms 1099, 1098, 5498, and W-2G.

109.I was wondering could you all send me any information regarding

1099, b notices, etc. (not limited to telephone, email, personal conferences, etc.) I am new in the position of handling this and would like as much information as possible. Therefore, I can better help the providers and make the people that serve life a little better.

Get Pub. 1281 which is available at www.irs.gov.

110.If we sign up for the electronic filing, are we taking responsibility for

the accuracy of the information that is filed. Where as with a 1096 being signed by a client, they are taking the responsibility?

The Payer not the transmitter is responsible for the accuracy of the

Information return data.

Fire – Electronic Filing – Paper Filing – Red Forms

111. You talked about the last year to file paper & tape cartridges will be the year 2007, so how will the small Sch C - self-employed individuals file their 1099Misc?

Paper filing is still available. However, the IRS encourages all filers to file electronically.

112. Would they also have to file electronically if they had 25 or less 1099's to file? in the years 2008 & the future?

No to both; electronic filing is mandatory if you have 250 or more of the same type of return to file. Any amount of returns less than 250 may be filed on paper. Follow the procedures outline in the General Instructions for Forms 1099, 1098, 5498, and W-2G.

113. With regard to the last question asked at the forum. QuickBooks represents that if you use their software produced “A” form, you do not need to obtain red forms from the IRS. Is this incorrect?

The IRS will follow up on this. However, if the form is not in the drop out ink, you should order the official paper copies by calling 1-800-TAX-FORM or online at www.irs.gov. If you decide not to file the official IRS forms, we cannot guarantee your forms will be processed timely.

114. If you electronically file the 1099 do you still send the recipients their copy.

Yes; this is part of the filing requirement. See the General Instructions for

Forms 1099, 1098, 5498, and W-2G available at www.irs.gov.

115.Re: form 4419 - Will this ever be available for on-line completion?

NO, because a signature is necessary

116. Will we have to file online after 2007 for less than 250 employees?

No. But the IRS encourages you to file electronically.

117.Can we as paid preparers, submit for more than 1 business online?

Yes, once you have applied and received your TCC, you may submit information returns electronically for any number of clients.

118. Will paper filing still be available for small numbers of 1099's (25 or

less) in 2008?

Certainly. We didn’t mean to infer otherwise.

119.Is there an area that I can test the electronic files before actually

sending them in?

Yes, the FIRE System accepts test files from Nov. 1 to Feb. 15 every year. Refer to Publication 3609 for information on how to access the FIRE System.

120.If I am an ERO do I still need to complete form 4419 to transmit 1099MISC?

Yes, you must have a TCC in order file 1099-Misc electronically through the Fire System.

121.The question I have is whether the Form 4419 Application for Filing

Information Returns Electronically is necessary if the software company providing software also functions as an electronic transmitter. In my practice I use ATX as my tax preparation software and it includes information reporting software. The completed returns are sent to ATX for processing and transmitting to IRS and state agencies. I assume that ATX has a TCC and that I do not need to file an application 4419. However that was not addressed in phone forum so I would appreciate confirmation of my understanding.

You are correct that you do not need to get a TCC since ATX is submitting your file for you.

122. Will you accept a 1099 which is printed from ATX software and not the IRS scannable form?

These are not acceptable forms and there is no guarantee that they will be processed if you submit these forms to IRS.

123. I am a semi-retired practitioner with a small tax practice and do low volume 1099 reporting. It is cost prohibitive to purchase software when preparing a few Forms 1099. Is there anyway that the IRS can provide the software to prepare the Forms 1099?

The IRS does not provide the software. Visit www.irs.gov for a list of

approved IRS e-file Providers. Enter keyword “business providers” in the

upper right corner of the home page and follow the links for e-file business

providers for information returns.

124. I have taken over as the treasurer for my church and was wondering if we are required to file form 1099. The instructions for form 1099-Misc state:

"Report on Form 1099-Misc only when payments are made in the course of your trade or business. Personal payments are not reportable. You are engaged in a trade or business if you operate for gain or profit. However, nonprofit organizations are considered to be engaged in a trade or business and are subject to these
reporting requirements. Nonprofit organizations subject to these requirements include trusts of qualified pension or profit-sharing plans of employers, certain organizations exempt from tax under section 501(c) or (d), and farmers’ cooperatives that are exempt from tax under section 521."

So far I have been unable to find which "certain organizations exempt from tax" are required to file form 1099 and which ones are not required to file. Is a nonprofit church required to file form 1099?

We checked with Exempt Organizations personnel, and there is no exemption for churches. Therefore, you would be required to file Form 1099-Misc.

125. You made mention that the form that is filed with the IRS must be the red form however there are a number of sources that have indicated that they have used a printable laser form that has been noted as scannable and have never received any correspondence from the IRS that this is unacceptable. Also, I know of a number of individuals that handwrite their 1099's which appear to of a nature where the information would be unreadable to a scanner. If the forms are submitted other than the red scannable form or are unreadable, what are the consequences?

The red form is applicable to paper returns. The special ink used in printing allows the forms to be scanned. The specifications for printing are in Section 2.1.4 of Revenue Procedure 2007-50 (Published annually as Pub. 1179). If the forms you reference followed the specifications in the Rev. Proc., then they are acceptable.

Also, part G. Paper Document Reporting of the General Instructions for Forms 1099, 1098, 5498, and W-2G state “Although handwritten forms are acceptable, the IRS prefers that you type or machine print data entries using 10 pitch or 12 pitch black type.”

If you choose not to follow the printing requirements as directed, you risk the chance of delayed processing of your submission. Both the Rev. Proc. and the general instructions are available at www.irs.gov.

126. Can I apply for use of FIRE to file all the 1099MISC forms for each company? Do I just complete one Form 4419 if so?

You need only submit one Form 4419. Once your TCC is assigned you can file for any number of clients.

127. Last year, we filed our 1099-Misc electronically thru the FIRE system, do I have to apply again?

No, once you have a TCC you do not need to apply again.

128. If we file thru the FIRE system is our filing deadline is March 31?

Yes, for all Forms which normally have a due date of Feb. 28.

129. Will the use of the FIRE electronic reporting system change the reporting requirements to payees?

No, you must always provide the recipient’s copy by its due date.

130. Extension of time file in form on FIRE.

Yes, Form 8809, Application for Extension to Fie Information Returns, is available as a fill-in form on the FIRE System.

131. I tried (again) to use this feature however it is still the reading TY 2006 and the boxes are disabled. When do you think the 2007 request will be available?

The extension option will be available Jan. 3, 2008.

132. For 2007 Forms 1099 that are filed in 2008 and need corrections to be made, can the corrections be made on paper or has that window also closed and must be done electronically?

Depending on the number of corrections, paper filing is available. If you have 250 or more corrections, you would need to file these corrections electronically. See the General Instructions for Forms 1099, 1098, 5498, and

W-2G

133. When will we be required to start e-file our 1099's or W-2's?

Currently, you are required to file electronically IF you file 250 or more of one form type per payer EIN.

134.Is it possible to electronically file a 1099 form (usually MISC) without

a recipient SS# or TIN? Or will this filing be rejected by the system? Will the system accept an ID# that is perhaps all zeroes or something of that nature to indicate that an ID# is unknown?

You can file 1099s without a TIN, however, if you file has a high percentage of this type of record your file may be rejected. You should make every attempt to obtain a payee’s TIN but when all else fails you should still file it. Leave the field blank. Do not put in all 1s or some similar combination.

In addition, I have seen and considered signing up for the TIN matching program but it appears to be exclusively for the employer or payer’s use and not for an accounting firm who would be preparing forms for their clients. Can it be used in this fashion by the accountant to verify ID#’s before remitting forms? If so, do we simply register our accounting firm with the program in order to be able to use it?

Currently the TIN Matching program is only available for payer’s of backup withholding. It is not open to general practitioners at this time. But e-services has a number of other available tools that makes it well worth your while to sign up for.

One last item. If we were to use FIRE, would we send electronic files separately for each of our clients or would we transmit one large file with all of them combined?

This would be up to you which way you would like to send your files. IRS would prefer you send one large file with all your clients.

135. If we use the FIRE system, how are the 1099 forms sent to recipients?

You have to furnish a copy to the recipient. The General Instructions for

Forms 1099, 1098, 5498, and W-2G discusses the options available to you

in part M.

136.Are they printed from the software programs available to purchase,

or does the IRS provide software?

The IRS does not provide the software. Visit www.irs.gov for a list of

approved IRS e-file Providers. Enter keyword “business providers” in the

upper right corner of the home page and follow the links for e-file business

providers for information returns.

137. What type of software do you need to use the FIRE system?

See the answer 134.

138.I did, however, have a question regarding the electronic filing of w2’s

and 1099’s. I do use an accounting software package (Creative Solutions) that does allow electronic transmission. Do I still need to complete form 4419 for the 1099’s and will I need to contact Social Security to transmit the W2’s. And, what form is needed to complete for the w2’s.

W-2s are electronically filed with the Social Security Administration at www.ssa.gov See the Instructions for Forms W-2 and W-3 available at www.irs.gov.

139. How long does it generally take for a 4419 application to be complete?

You must file Form 4419 at least 30 days before the required due date.

140. What are the deadlines dates for electronically filing and deadline dates for paper filing?

The deadline for filing electronically with the IRS is March 31; for paper filing, February 28. The due date for furnishing a copy to the recipient is January 31. Refer to the back of Copy C, Instructions for Payer’s, of the official IRS form for the exact due dates each year.

141. Is sending your W2 and 1099 to the SSA the same as sending them to the IRS or do we have to send them separately and if so, what do we do for the W2 & 1099 that were sent last year?

File W-2s with the Social Security Administration at www.ssa.gov; file Forms 1099s with the IRS. See the Instructions for Forms W-2 and W-3 for more information. For Forms 1099, see the General Instructions for Forms 1099, 1098, 5498, and W-2G. Both sets of instructions are available at www.irs.gov.

142. We use a third party vendor for our 1099 forms and so far have not been told they are not scannable. Before the Dec 1, 2008 deadline, is there

A way to determine if our third party vendor is providing ‘scannable’ forms?

I would think they are filing electronically but why not just call and ask them?

143.. How long has the Fire System been available to do corrections this

way?

The correction process has always be available on the FIRE System.

144. Can Form 4419 be faxed or emailed?

The Form 4419 can be faxed to 304-264-5602. We do not recommend emailing the form since it is not secure and you are providing EIN information on the form.

145.When you have to wait for a mailed TCC number correct?

So during the filing season, a transmitter cannot immediately get a tcc and would have to file for extension, correct?

You can request that IRS/ECC- MTB call you with the number by writing your request on the form.

146. We are a small company issuing less than a dozen 1099-Misc each

year. Are we required to file electronically?

No, but the IRS encourages you to file electronically.

147.I attended the class this morning and had a couple questions

regarding the electronic filing of Form 1099. It looks like you can only electronically file the Red copy of the 1099 and 1096.

The red copy A is used by paper filers. To electronically file, you must have software compatible with the FIRE system. See Pub. 1220 for more information on electronic filing of information returns.

Can you electronically file the State if Missouri copies of the form 1099?

Yes, MO participates in the Combined Federal State Filing Program. You need to submit a test file to be approved for this program. See Part A, section 12 of Publication 1220 for detailed information on this program.

It seems to me that if you have to file on paper forms, the recipient’s copy of the 1099 and possibly the state copy of the 1099, that there wouldn’t be a reason to file any forms electronically. Can you tell me the advantages of electronically filing the form 1099?

Please see the General Instructions for Forms 1099, 1098, 5498, and W-2 for filing procedures; Pub. 1220 will give you more information on electronic filing. Louise covered the advantages in her presentation.

148.How long before the IRS will accept black and white 1096s.

The IRS is not considering this method of filing. IRS encourages you to file electronically. See the General Instructions for Forms 1099, 1098, 5498, and W-2G and Pub. 1220 for more information.

149.I work for an accounting firm with 13 offices in various towns across

the state. Each office may have multiple staff persons that prepare 1099s and W2s. When we submit Form 4419 to obtain our TCC code, will we apply by preparer, by office location, or as a firm? When we e-file income tax returns, each office has a different EFIN.

If each office has a different EIN then I would suggest separate TCCs, otherwise, 1 TCC would be sufficient for all locations.

150.I am with a CPA firm that processes well over 250 1099's per tax

year. Since we are processing these on behalf of the clients, they all have their own EIN numbers that we use. Each individual client does NOT have over 250 forms per EIN number.

It’s by filer, not by preparer.

Therefore, is it necessary that the firm does electronic filing?

No.

Or because we are using various EIN numbers, is this not necessary?

That is correct.

151.If we use the FIRE system, how are the 1099 forms sent to

recipients?

You have to furnish a copy to the recipient. The General Instructions for Forms 1099, 1098, 5498, and W-2G discusses the options available to you in part M.

152.So during the filing season, a transmitter cannot immediately get a tcc and would have to file for extension, correct?

Generally, the fastest turnaround is about 2 days. If you have waited until the do date to request a TCC then I recommend you submit an extension request, Form 8809. This is available as a fill-in form on the FIRE System.

153.We e-filed 1099s through FIRE for 2006. We have a TCC number is it good for 2007 or do we need to apply for a new one each year?

Once you receive your TCC, you do not need to reapply each year.

154.Can you please let me know how I can obtain my company's TCC

code for electronic filing? The individual that did this for our company is no longer with us and she did not leave us this information.

Contact the information reporting call site at 1-866-455-7438 and they can look it up for you. You will need the EIN of the business.

International

155. Can you explain what needs to be filed for amounts paid to an individual in another country for trades or business conducted on the internet?

Please call the information reporting call site at 1-866-455-7438 for help on this issue.

156. Which form do we use to record payments to individuals who work outside the US; for example, workers in India?

See Form 1042-S and its instructions which are available at www.irs.gov.

157. I have one foreign supplier. Can this also be filed electronically?

If the foreign supplier is providing a service to you.

158.What forms are required for foreign recipients?

See Q/A-155 above.

W9

159. If you receive a letter head that indicates that vendor is incorporated

are you still required to obtain a signed and completed Form W9 that certifies to that affect?

Get the vendor to complete and sign the W-9, just because the letter head indicates a corporation, it may be a “doing business as” name and they are not legally incorporated.

160. If a sole proprietor fill in their W-9 and give us their SSA # and EIN#, which number should we use on their 1099-Misc form?

You can use either, but put the person’s name on the first name line with the DBA name on the second name line.

161. What is the proper procedure to use if a business will not return a

W-9 with a TIN number, they have already been paid so withholding is not an option, but I still must issue them a 1099?

Yes issue the Form 1099-Misc. However, you should solicit for a TIN on Form W-9. See Pub. 1281 for procedures regarding missing or incorrect TINs. You may be responsible for the backup withholding amount.

162. How often do we need to solicit for updated W-9 information from a vendor that we do business with on an on-going basis?

The solicitation is good until you have reason to know some of the information may have changed.

163.My question is concerning the form W-9. Is it required to be on file

for independent contractors you use as a W-4 is for employees?

You do keep both in your files. Form W-4 is for an employee to give you the number of exempts for federal income tax purposes. Form W-9 is used to solicit and certify, as required, the person’s taxpayer identification number. If you don’t get the TIN, you may have to withhold 28% of any payment you make to them. This is called backup withholding. See the General Instructions for Forms 1099, 1098, 5498, and W-2G available at www.irs.gov.

164.Also, do Canadian drivers receive a 1099? Is there another form they

are reported on and could you explain the W-8BEN.

You would issue Form 1042-S, if applicable, and assuming that the person

is a nonresident alien for tax purposes. Refer to the Form 1042-S

instructions for the number to call for international questions. For Form

W-8BEN, see the Instructions for the Requester of Forms W-8BEN,

W-8ECI, W-8EXP, and W-8IMY available at www.irs.gov.

165.Should we solicit a W-9 form from all vendors to whom we make

payments, even large material suppliers that we know are incorporated?

Solicit a W-9 from vendors who provide services to you regardless of the size. You need to determine, based on the W-9, whether a 1099 is required and if backup withholding is required if no TIN is provided.

LLC- PLLC

166.If a LLC or a PLLC entity is reporting to the IRS as a partnership (F1065) or a single-member LLC (Sched. C) and is incorporated with the state ~ does one still issue them a 1099?

How they file for federal tax purposes is the determining factor.

So you’re saying that the form used to report income to the IRS determines if the entity should receive a 1099. Example: an PLLC may be incorporated with the state but filing income to the IRS on Form 1065 should receive a 1099. YES?

Yes.

167. Facts –

Taxpayer is a partnership for federal tax purposes and owns 100% of a single member limited liability company that is disregarded for federal income tax purposes. The partnership files a federal income tax return that includes the activity of the disregarded entity as a division. Both the single member LLC and the partnership have their own federal ID numbers.

Question #1

What is the reporting requirement for information returns (other than payroll), such as Form 1099-Misc, for the single member LLC (disregarded entity) –

Does the entity have the option of either reporting its reportable transactions under its federal ID number or including them with the information reporting made by its owner (the partnership) as was the case with payroll reporting prior to the recently enacted laws?

Is there any technical guidance regarding this reporting, other than the Regulation 301.7701-2 & 3, which treats the entity as disregarded for all federal tax purposes?

Question #2

If payments for reportable services are made to third parties by the above partnership on behalf of the disregarded LLC, what entity is responsible for the information reporting? Is it based on the entity’s bank account that made the payment?

Not enough information provided. Please call the information reporting call site at 1-866-455-7438 regarding the above questions or request a private letter ruling.

168. Where would a company (LLC) put the fees paid to a bank for funding of their invoices...eg.. company a pays bank x 3%of the total invoice to receive payment that week to pay payroll...instead of waiting 30 days to receive payment from company b.....please advise where to place this so that i may relay it to on of my customers...

Please call the information reporting call site at 1-866-455-7438 regarding the above questions.

169. There was a question at the end of the forum pertaining to single

member LLC's owned by a partnership. I would appreciate receiving a

copy of your response to her:

I believe her scenario to be: SMember LLC "xyz" (owned by Ptrship "ABC") pays rental income to John Doe Ptrship "ABC" also pays rental income to John Doe

I believe her question was whether:

A) "xyz" should issue John Doe a 1099 Misc for its share of rent

AND

"ABC" issue John Doe a separate 1099 misc for its share of rent

Or

B) Should "ABC" issue a 1099 to John Doe for the combined amount of rent since "xyz" is a disregarded entity and does not file its own tax return.

Or, I would carry it a step further, is either acceptable? They each have separate FEINs and separate checking accounts.

This is too complex due to the unknown relationship of XYZ to ABC to address here. You may want contact the information reporting call site if you have more information.

170.In the teleconference this morning, November 28th, a statement was

made about Limited Liability Companies (LLCs) in reference to their tax and/or corporate status. You said to have a LLC complete a W9 form and ask them to check the type of entity they are for reporting purposes. It was

stated that unless they choose corporation, we are to see them as a

partnership. This is one of the issues we are struggling with in our

systems. Most LLCs choose "other" and will not make any other choice. Is

there anything in writing that says we are to see them as a partnership or

can you expound on that statement? Publication 3402 defines how to

determine if they are an individual or corporation based on the type of

form they use to report their income. However, most companies will

not give us that information.

It is safer to assume they are a partnership because you will file the 1099

When required. If you don’t file but were required to do so, you could be

facing penalties for nonfiling of information returns.

171.If someone is a single person LLC and self-employed with Federal

EIN number, provided services to another business (i.e. Corporation), and received $600 or more, do the comments on this page indicate that the payer (the Corporation) can use either Fed EIN number or SS# of payee, when the payer prepares 1099MISC?

For a single member LLC, you can report using the EIN, however, use the single member’s name on the first name line and the dba name on the 2nd name line of the form.

172.Please note that the IRS wants the payee's individual name first, then

followed by dba XXXXXX, LLC according to the comments. If the IRS would try to match the individual payee's name with the payee ID number and such ID number is a Federal EIN instead of SS#, there will be an information matching problem. Maybe you don't. Please provide me with clear guidance on this.

The IRS does not use the dba name for the name control. Thus it doesn’t matter if the EIN or SSN is used. The person’s name is used on the first name line and you may use the second name line for the dba.

173. If a LLC or a PLLC entity is reporting to the IRS as a partnership

(F1065) or a single-member LLC (Sched. C) and is incorporated with the

state ~ does one still issue them a 1099?

It is the federal tax status that matters. Therefore, if the LLC is a

partnership, then 1099s should be issued as required.

174. So you’re saying that the form used to report income to the IRS

determines if the entity should receive a 1099. Example: an PLLC may be incorporated with the state but filing income to the IRS on Form 1065 should receive a 1099. YES?

Yes.

Links

175.Could you please tell me or give me the website or link for getting Rev. Rul 2007-27 that you talked about?

Several Revenue Ruling were mentioned in the presentation unfortunately this was not one of them. Since we do not know what topic you are referring to it is impossible for us to provide the link. Our Revenue Rulings are found on our website www.irs.gov. Please email us some additional information at our nationalphoneforum@irs.gov and we will attempt to get you the link.

Rent Payments - Leases

176. Are the periodic payments made for leasing a piece of postage equipment reportable under RENTS?

Yes if the amount is $600 or more for the year.

177. Should leased equipment payments be reported with rent?

Yes.

178.Does a rental supply company that leases all of its equipment and rents to the general public file 1099’s.

If the equipment is leased from someone other than a corporation and the amount for the year was $600 or more, than yes Form 1099-Misc would be filed with the IRS and Copy B or substitute is furnished to the equipment rental company.

179. The caller was a landlord with unpaid rents and asked about issuing

a 1099-C. You asked if the landlord was in a "trade or business". By law my understanding is rental properties are in a trade or business. The 1099-C sounded like a good idea if the landlord is canceling the debt. I had not thought of this before. Do you have second thoughts?

You cannot use Form 1099-C for lost income. Form 1099-C is filed for cancelled debt by certain government agencies, financial institutions, and others in the business of lending money. See the Instructions for Forms 1099-A and 1099-C available at www.irs.gov.

180.The company is paying an employee to rent his home for company business. Are these payments reportable to the employee on Form 1099-Misc?

See Pub. 463 for accountable plans.

181.On the issue of rents being reported, would an operating lease fall in that category?

Yes.

I also have clients that on occasion rent scaffolding, back hoes’, etc. Would that need to be reported?

If payments are over $600 then yes.

182. Is a lease considered rent when it comes to reporting all rents?

Yes.

183. I PREPARE FORM 990 FOR A 501C3 ORGANIZATION WHICH RENTS SPACE FOR ITS OPERATIONS FROM AN INDIVIDUAL. SHOULD THE RENT BE REPORTED TO IRS AND THE INDIVIDUAL ON 1099MISC?

Yes for payments of $600 or more.

184. In the oil & gas, more specifically "the drilling segment of it", are Rig fees paid on a per diem basis subject to reporting on the Form 1099. If so, is it reportable on 1099 MISC (the logical choice).

Is it treated like a Rent payment and offset by expenses of the property (the rig).

If it is paid to an independent contractor (non-employee) isn't it reportable on a 1099 anyway?

Is this something "new" this year and is it included in Reg 6045(f) like you mentioned in the question period?

Recommend you contact the information reporting call site at 1-866-455-7438.

185. On slides 20 and 22 you referred to new reporting rules under

Section 409A. Our company is a non-governmental nonprofit (501c6). I have retired employees who receive distributions from their 457 deferred compensation plans. I use a W-2 to report the distributions in Box 1 and Box 11. Did I understand you to say during the forum that that has changed? What should I be using?

No change for retired employees; section 409A requirements also apply to employees receiving NQDC payments. Refer to the Instructions for Forms W-2 and W-3 for more information.

186. A real estate agent collects rent from the renters and passes the money to the owner. The agent oversees the maintenance of the rental. The agent sells homes and manages properties as her business. Should the real estate agent send a F. 1099 to the owner?

Yes, See Regulations section 1.6041-1(e)(5), Example 5.

187.Do copy machines that are leased from a Corporation need to be

reported?

If their W-9 indicates that they are a corporation, then no 1099 need be filed.

Government Entities – Non Profit

188. We are a local government unit. We make rent payments to vendors under federal Housing Assistance programs and Veteran's assistance programs. Are those payments needing to be reported in Box 1 for rents?

Payments by federal, state, and local governments are reportable. However since your question is very specific, contact the information reporting call site at 1-866-455-7438.

189. The questions involve Form 1099-C and relate to screens 14 and 15 of the presentation.

I work for a state unemployment security department. We disperse funds to qualified unemployed individuals. At times, the claimant may have been overpaid for one reason or another. This overpayment is considered a debt the claimant owes the state. We do cancel overpayments if the claimant files for bankruptcy. Do we need to send in a Form 1099-C for each overpayment cancelled due to bankruptcy? If so, is this just for those cases that are $600.00 or more?

No, you do not use Form 1099-C for this purpose. The department is not in the business of lending money.

190.We are a local government unit. We make rent payments to vendors

Under federal Housing Assistance programs and Veteran's assistance programs. Are those payments needing to be reported in Box 1 for rents?

Contact the information reporting call site.

191. The questions involve Form 1099-C and relate to screens 14 and 15 of the presentation.

I work for a state unemployment security department. We disperse funds to qualified unemployed individuals. At times, the claimant may have been overpaid for one reason or another. This overpayment is considered a debt the claimant owes the state. We do cancel overpayments if the claimant files for bankruptcy. Do we need to send in a Form 1099-C for each overpayment cancelled due to bankruptcy? If so, is this just for those cases that are $600.00 or more?

Contact the information reporting call site.

192.On slides 20 and 22 you referred to new reporting rules under

Section 409A. Our company is a non-governmental nonprofit (501c6). I have retired employees who receive distributions from their 457 deferred compensation plans. I use a W-2 to report the distributions in Box 1 and Box 11. Did I understand you to say during the forum that that has changed? What should I be using?

No change for retired employees; section 409A requirements also apply to employees receiving NQDC payments. Refer to the Instructions for Forms W-2 and W-3 for more information.

Loans

193.How does ( or does ) a payer of interest on a personal loan report it

to the IRS? It was paid to an individual over several years and although not deductible by the payer should have been reported as income by the recipient. It was several hundred dollars in 2003, 2004, 2005 and 2006. The tax payer is concerned that the proper interest was not reported and therefore an underpayment of tax was paid on their return.

Interest on personal loans is not reportable on an information reporting

return. Reportable interest is on obligations in registered form or that

offered to the public, interest on deposits with financial institutions, etc. It

is up to the individual to report the interest earned on his income tax

return.

194.I have a bank client. Their question to me is "Can we only send Form

1098's to people with the interest paid for their primary residence?" They want to avoid sending forms to people with 2nd homes, agricultural land, rental property, vacation property and so forth. I believe they must send forms to any individual or sole proprietor owner when they have a mortgage on real property.

That is correct. They must file with the IRS and furnish Form 1098 information to any individual who has paid mortgage interest of $600 or more. IRC 6050H and its regulations.

195.We have a client that is in the business of making construction loans

To individuals and entities that are building or renovating real property. The loan proceeds are usually disbursed in stages over time. Usually, the proceeds are paid to the borrower who uses the money to pay contractors. However, sometimes the borrower asks our client to issue the loan proceeds check directly to a contractor in payment for services rendered in the construction.

If the contractor is a partnership and the borrower makes the payment out

of loan proceeds, then it is the borrower's obligation to issue a 1099-Misc

to the contractor for his services. However, in the case where the

borrower requests that my client, the lender, issues a check for the loan

proceeds directly to the contractor, is it the lender's obligation to issue the

1099-Misc rather than the borrower?

(I should point out that the client issues borrowers 1098's for the mortgage interest and 1099-INT's for interest paid on escrows, but that is not the subject of my question.)

From the Instructions for Form 1099-Misc:

MISC

196. Parents ‘lend’ money to a child who is married to purchase a house. The note reads ‘in lieu of interest’, when the house is sold, they pay back to the parent the same percent of the sale price that they put into the house at purchase time. I see three outcomes and don’t know how to handle any of them. Say the house doubled in value.

Upon a sale, does the child cut a 1099 to the parent to reflect a gain? That would be the amount of the increase in value of the parent’s percent.

The parents decide to cancel the note. Should they generate a 1099 for the cancellation of debt? If so, would it be for the original investment amount, or for the percent of the gain amount and the original investment as if the house was sold.

Could the parents gift an amount to the child and their spouse each year to pay down the note. For example, when the free gift amount was $10,000 a year (to make matters easy), the parents could gift a total of $40,000. So the parents would pass $40,000 down and the child and spouse would return it as a reduction for the note. If so, them maybe the parents could just write a note that they were gifting $40,000 that year against the outstanding value of the note?

Forms 1099-Misc are issued for payments made in a trade or business; Form 1099-C is issued for cancellation of debt by a business whose significant trade or business includes the lending of money; no filing in items 1 or 2 above. Item 3 is beyond the scope of information reporting. You may want to call the IRS toll free line at 1-800-829-1040.

197. Is there a website where can we check TIN numbers to make sure that business is legit?

The IRS does not support such a site. If you solicit their TIN via Form W-9, you may be able to sign up for TIN matching. The IRS will confirm whether you have a correct TIN. See the General Instructions for Forms 1099, 1098, 5498, and W-2G.

198. Is there a service to verify EINs if you are not a tax professional? I recommended SSNVS for social security verification. We have a trucking company with hundreds of independent contractor drivers and they would like to upload and verify EINs as each year they receive notices of EINs that don't match.

Payers can sign up for TIN Matching. See the General Instructions for Forms 1099,, 1098, 5498, and W-2G.

199.Are the questions and answers for the various phone forums posted

to a specific location on the website?

NO the Q & A are not posted to our website. If you attended a forum you will receive an email with the Q/As.

Late received Questions

200.An Austin, TX corporation employs a Canadian citizen who’s a

Canadian resident (in Ontario). He’s a sales rep. He works 1/3 of his time in the US (and earns 1/3 of his income in the US) and 2/3 in Canada. The corporation will issue him a 1099 for his 2007 earnings. Because he is neither a Green Card holder or a US resident under the physical presence test, he will report the US 1/3 of his total earnings on a 1040NR return. Should the corporation issue him a 1099-Misc reporting all his earnings including Canadian, or just reporting his US earnings in Box 7?

Of note, the sales rep does not have a US Social Security # or an ITIN.

The above facts are not clear. Call the information reporting call site at 1-866-455-7438 so additional follow-up questions can be asked.

201. Should we report the rent we pay for our lease to the building in Box

1 on the form 1099-Misc?

Yes.

202. We would like to know where we can go to get clarification on LLC;

specifically, if on the form W-9 the payee checks off Limited Liability Company and they must tell us the tax clarification, what does this mean to us as the payor?

If they check corporation then generally no 1099 is required, however, if they are a single-member or a partnership then 1099s are required. Also, how you complete the entity area of the 1099 is important for a single-member LLC who is a sole proprietor.

203. And what classifications would make them exempt from receiving a form 1099-Misc?

If they are a corporation generally no 1099 is required; however, there are exceptions. See the Instructions for Form 1099-Misc. There are other entities also exempt such as tax-exempt organizations, the United States, or a state government. See the Instructions for the Requester of Form W-9 for more.

And if they check off Exempt Payee, do we have to take that at their word and if not, what do we have to do?

If I had any doubt, I would ask them.

204. If an attorney hires an outside expert and pays that expert and asks

us to reimburse the attorney for this expert's services, where would this amount go? In Box 7 or 14?

Box 7. Box 14 is for gross proceeds paid to an attorney regarding settlement payments from a suit.

205. We have not received a list of non-match errors for tax years 2005 and 2006. In 2006, we started filing electronically. Has the production of this list stopped? If not, should we expect to receive one in the future?

Louise? I assume you are referring to the CP2100 Notices, commonly known as B-Notices. We are still sending these notices. If you have not received one and feel that you should have received a notice, you can call the toll-free number 866-455-7438. We can check our data base to see if your company was sent a notice and where it was sent.

206. Typically, we are an insurance company, who pays Commissions on Policies to outside agents and brokers, and Attorneys, Public Adjustors, and Experts in the settlement of claims. We also include payments to outside services for expenses. We would like the answers to the above questions to reflect our particular situation.

Payments for services of any type to the above mentioned are reported in box 7; gross proceeds paid to attorneys in settlement of claims are reported in box 14.

207.We are a government agency who pays contractors for services and

we issue 1099s to those contractors. Are copyrights reportable on 1099-Misc? For 1099 reporting purposes, are copyrights considered Royalties?

Royalties may be received from books, stories, plays, copyrights, trademarks, etc. under Treasury Regulations section 1.61-8(a). Therefore, royalties paid on copyrights are reportable on Form 1099-Misc as such.

208.Yesterday Margaret mention an IRB that just been released. I wrote

the number down wrong and cannot find it on the www.irs.gov I thought she said 2007-46 but that wasn’t correct for income reporting.

IRB 2007-48 was issued on November 26, 2007. The IRBs are available at

http://www.irs.gov/businesses/lists/0,,id=98230,00.html

209. I was wondering how do we report on a 1099-Misc if the dba name is

ABC Farms but there are 2 individual owners. The owners state that they are not a partnership. They marked on the w-9s that it is a joint ownership company. They submitted 2 separate w-9s for the same business each w-9 lists the same business name except with different social security numbers.

How will this be reported on the 1099-Misc?

Whose name do they want it reported under? Explain to them that you need one of their names in which to report the income to the IRS.

210. We have a program where we give farmers money to help reimburse their feed costs. Is this something that would need to be reported on a 1099-Misc?

More information is needed. Contact the information reporting call site at 1-866-455-7438.

211.I have a question regarding reporting section 409A compensation in

Box 15. I have read two different bulletins from tax news sources that are indicating the IRS is not requiring the 409A reporting again this year. Is that true? If so, is it true for both 1099's and W2's. Any information you can provide would be greatly appreciated.

The following was posted under What’s Hot in Tax Forms and Publications on the Tax Forms and Publications website at www.irs.gov.

Caution — Change to the 2007 Instructions for Forms W-2 and W-3 and the 2007 Instructions for Form 1099-Misc

If you downloaded the 2007 Instructions for Forms W-2 and W-3 or the Instructions for Form 1099-Misc before December 7, 2007, please note the following correction.

For calendar year 2007, employers/payers do not have to report nonqualified deferred compensation amounts not includible in gross income under Section 409A in box 12 of Form W-2 using code Y (or box 15a of Form 1099-Misc). This interim guidance from Notice 2007-89 is not reflected in the 2007 Instructions for Forms W-2 and W-3 and Instructions for Form 1099-Misc as these products were sent to print earlier.

Update: Notice 2007-100 provides transition relief and interim guidance on operational plan failures. Certain amounts may not be includible in gross income or subsequently reportable in box 12 of Form W-2 using code Z or boxes 7 and 15b, as applicable, of Form 1099-Misc. Notice 2006-100 for 2006 and Notice 2007-89 for 2007 are modified to conform to the requirements of Notice 2007-100 for amounts required to be reported on Forms W-2 or 1099-Misc as amounts includible in income under section 409A.

For more details on reporting and withholding requirements for nonqualified deferred compensation plans, see Notice 2007-100. --09-DEC-2007

212. While reviewing vendor information for 2007 reporting we found a 2006 payment to a vendor for services that was over $600.00 that should have been reported. How do we correct the oversight at this time?

Issue the 2006 Form 1099-Misc to the vendor and also file it with the IRS.

Thanks for submitting your questions. If you need further assistance or we were unable to answer your question please contact our information reporting call site at

1-866-455-7438.

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