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.
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:
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.
must file Form 1099-MISC?
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.
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.
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.