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Form 1099-MISC Reporting Requirements

The IRS continues to increase its scrutiny of Form 1099 reporting by individuals and businesses. The IRS uses 1099s submitted to them to be sure Form 1099 recipients report the income on their income tax returns. Failure to comply with 1099 filing requirements may result in substantial penalties.

Certain 1099-related penalties are more than double what they were in previous years. The penalties increase the longer the 1099 filing failure continues or the longer it takes to correct 1099s filed incorrectly. Penalties range from $30 to $100 per form, with a maximum penalty of $1.5 million. However, if the rules are intentionally disregarded, penalties increase to $250 per 1099 with no maximum penalty. Starting in 2011, IRS added two new questions on its individual and business tax forms to increase awareness of the 1099 filing requirements and add another opportunity to identify taxpayers that should be filing 1099s but are not. The individual tax forms reporting business income, rental income and farm income (Schedules C, E and F, respectively) have two additional questions:

  • “Did you make any payments that would require you to file Form(s) 1099?”

  • “If ‘Yes,’ did you or will you file all required Forms 1099?”

Similar questions also have been added to corporate and partnership returns.

Given the increased IRS focus on taxpayers’ information reporting obligations, it is important to know when a Form1099 filing is required.

Who must file Form 1099-MISC?

  • All entities engaged in a trade or business (sole proprietorships, partnerships and corporations)

  • Landlords engaging in the business of renting property

  • Nonprofit organizations, federal, state or local governmental agencies

  • Trusts of qualified pension or profit-sharing plans of employers

When is Form 1099-MISC Required?

Businesses will need to fill out a Form 1099-MISC for each person, vendor, subcontractor, independent contractor, and others in the following circumstances:

  • $600 or more per year is paid for rents, services (including parts and materials), prizes and awards, medical and health care payments, crop insurance proceeds, cash payments to fishermen, proceeds paid to attorneys, and other types of payments not covered by another information reporting document.

  • Reporting such payments is required if the recipient of the payment is not a corporation - for example, when the recipient is an individual, estate, partnership, a limited liability company treated as a partnership or sole proprietorship. Payments made to corporations may be reported using Form 1099-MISC, but is not required.

Exceptions:

  • Payments to corporations for legal services. The exemption from reporting payments made to corporations does not apply to payments for legal services. Therefore, you must report attorneys' fees (in box 7) or gross proceeds (in box 14) as described earlier to corporations that provide legal services.

  • Medical and health care payments are reported on Form 1099-MISC even if made to corporations.

  • Payments of rent to real estate agents do not have to be reported. But the real estate agent must use Form 1099-MISC to report the rent paid over to the property owner.

1099-MISC Requirements for Landlords

Prior to 2011 owners of rental real estate were generally not considered to be engaged in a trade or business and were therefore exempt from the 1099 reporting requirements. Landlords engaging in the business of renting property are still required to issue 1099s for vendors paid $600 or more. A person engaging in a trade or business is defined as a person who is involved in the activity continuously and regularly and whose main motive in engaging in the activity is for income or profit. Thus these filing requirements will not apply to the owner of property who turns over management duties to an outside source, as he is not regularly and continuously involved in the activity.