The IRS has begun focusing heavily on taxpayer
compliance with information reporting laws. Penalties for compliance failures
have increased sharply.
Generally, any person,
including a corporation, partnership, individual, estate, and trust, who makes
reportable transactions during the calendar year must file information returns
to report those transactions to the IRS. Persons required to file information
returns to the IRS must also furnish statements to the recipients of the income.
Getting The Information
You Need
To properly report the
information required on Form 1099, you need to have the provider's taxpayer
identification number (TIN). You can request that the provider fill out and
give you a Form W-9, Request for Taxpayer Identification Number and
Certification, before work is done or payments are made. If a provider does not
supply you with a taxpayer identification number, you are generally required to
"backup withhold" 28 percent from any "reportable payments."
Form 1099-MISC Rules
Form 1099-MISC is
probably the most filed Form 1099 of the series. You must file Form 1099-MISC,
Miscellaneous Income, for each person (subject to the exceptions listed below)
to whom you paid during the year:
(1) at least $10 in
royalties or broker payments in lieu of dividends or tax-exempt interest;
(2) at least $600 in
rents, services (including parts and materials), prizes and awards, other
income payments, medical and health care payments, crop insurance proceeds,
cash payments for fish (or other aquatic life) purchased from anyone engaged in
the trade or business of catching fish, or, generally, the cash paid from a
notional principal contract to an individual, partnership, or estate;
(3) any fishing boat
proceeds; or
(4) gross proceeds of
$600 or more paid to an attorney.
In addition, Form
1099-MISC must be used to report direct sales of at least $5,000 of consumer
products made to a buyer for resale anywhere other than a permanent retail
establishment. Form 1099-MISC must also be filed for each person from whom you
may have withheld any federal income tax under the backup withholding rules,
regardless of the amount of the payment.
You must report
payments on Form 1099-MISC only when the 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. For this purpose,
nonprofit organizations are considered to be engaged in a trade or business and
are subject to these reporting requirements.
When a Form 1099-MOSC
Is Not Required
Some payments are not
required to be reported on Form 1099-MISC, although they may be taxable to the
recipient. Payments for which you are not required to file a Form 1099-MISC
include:
(1) generally, payments
to a corporation;
(2) payments for
merchandise, telegrams, telephone, freight, storage, and similar items;
(3) payments of rent to
real estate agents;
(4) wages paid to
employees (these must be reported on Form W-2, Wage and Tax Statement);
(5) military
differential wage payments made to employees while they are on active duty in
the Armed Forces or other uniformed services (these also must be reported on
Form W-2);
(6) business travel
allowances paid to employees (may be reportable on Form W-2);
(7) cost of current
life insurance protection (must be reported on Form W-2 or Form 1099-R,
Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans,
IRAs, Insurance Contracts, etc.);
(8) payments to a
tax-exempt organization, including tax-exempt trusts (IRAs, HSAs, Archer MSAs,
and Coverdell ESAs), the United States, a state, the District of Columbia, a
U.S. possession, or a foreign government; and
(9) certain payment
card transactions if a payment card organization has assigned a merchant/payee
a Merchant Category Code (MCC) indicating that reporting is not required.
Attorney fee payments
made to corporations generally must be reported on Form 1099-MISC.
Penalties
Penalties for failure
to file correct information returns may apply if you: (1) don't file a correct
information return by the due date and a reasonable cause is not shown; (2)
file on paper when you were required to file electronically; (3) fail to report
a taxpayer identification number (TIN); (4) report an incorrect TIN; or (5)
fail to file paper forms that are machine readable.
Penalties for failure
to furnish correct payee statements may apply if: (1) you don't provide a
correct payee statement by the applicable date and a reasonable cause isn't
shown; (2) all required information isn't shown on the statement; or (3)
incorrect information is included on the statement.
The penalty rates for
failure to file correct information returns and/or to furnish correct payee
statements depend on how late the correct Form 1099 is filed and can range
anywhere from $50 per return to $260 per return. The per-failure penalty is
$530 for a taxpayer who intentionally disregards the filing requirements for
information returns and payee statements.
If you are audited, the
IRS will want documentation of expenses and will look at whether 1099s were
filed. Any wage and labor amounts to be deducted on your return will be
separately classified and will not be hidden or bundled with other expenses,
since there are specific lines on the returns for wages and labor.
There are many other
types of information returns that you may be required to file depending on the
types of activities in which your business engages in. Please call me at with
any questions.