Filing Year-End Information Forms (1099s)

January 2, 2014

The reporting requirements for the various governmental agencies can be overwhelming, and, at the end of the calendar year, it seems much worse.  One of the year-end documents required to be prepared is Form 1099.

Individuals, partnerships (including LLP and LLC’s), corporations, or other organizations engaged in a trade or business (including rental property) are required to file information returns (Forms 1099).  Whether or not you have a professional prepare them for you, you must still file the appropriate forms for all payees that meet the criteria listed below.

The types of payments, which would require a 1099, include, but are not limited to:

1. Payments of $10 or more, relating to interest, stock dividends, stock distributions and royalties. (1099-INT, 1099-DIV, 1099-MISC)

2. Payments of $600 or more, for non-employee services, rents, and liquidation distributions. (1099-MISC, 1099-DIV)

3. Payments (regardless of the amount) for acquisition or abandonment of property secured for debt. (1099-A)

Generally payments made to corporations are exempt from reporting on a 1099. (There is an exception for payments made for medical/health care and legal services to Medical provider corporations and Law corporations.)  Also, please note that 250 or more of any of these forms require magnetic media filing with the IRS.  If you think this will be your case, contact your tax preparer immediately and they’ll help you make the necessary arrangements.

Effective January 1, 1998, if you make a payment to an attorney in connection with legal services and the attorney’s fees cannot be determined, the total amount paid to the attorney (gross proceeds) must be reported in box 14.  If you are an attorney, you are now required to file Forms 1099 on funds disbursed from the cost advance/client cost trust accounts.

The penalty structure for not filing these information returns is similar to last year. There are three distinct categories of penalties, which can be assessed for failure to file these payee statements.  The penalties can be $15 – $50 per information return with maximum penalties from $25,000 to $250,000 depending on the timeliness of the filing date of the return.  The IRS is cracking down on the lack of reporting in this area and is placing the responsibility of “tax reporter” onto you.

As the payer, it is your responsibility to obtain the information necessary from the recipient to properly prepare Forms 1099.  This is accomplished with a form W-9 or a substitute W-9.   This form should be filled out by each payee and made as part of your permanent records.  If you are audited, this can be used as documentation to support your filing of the 1099s.  (One of the penalties, mentioned above, is based on filing Forms 1099 with incomplete or incorrect information.)  For this form, go to www.irs.gov or click on this link: Form W-9 to print as many as you need.

In addition to potentially-assessed penalties, during the course of an examination by the Internal Revenue Service, Franchise Tax Board or other regulatory agency, the deductibility or propriety of the payment(s) can be disallowed when 1099s have not been prepared and filed.  During the course of an audit with the Internal Revenue Service, Franchise Tax Board, or other regulatory agency, the absence of prepared W-9s can also result in the disallowance of associated deductions.

It is also important to note that if you do not have the appropriate information from the recipient to prepare a 1099, you are required to withhold 31% federal income tax on any moneys due that recipient.  If you do not, you may lose the deduction for the payment of these services as well as being subject to penalties and interest.  Therefore, we recommend you have all recipients fill out a W-9 prior to being paid.  This will protect you from any future liability.

Forms 1099 are required to be issued to the recipient by January 31, 2014 and sent to the government by February 28, 2014.  At Wallace & Associates, our Encino CPA firm can help you prepare 1099s or answer questions you may have about them.  Our client list covers a wide variety of industries and business sizes from sole proprietorships to international corporations.  Contact us today and we’ll create a service structure for you that will fit your needs.

Wallace & Associates serves the greater Los Angeles area, including: Beverly Hills, Burbank, Calabasas, Culver City, Downtown LA, Encino, Granada Hills, Hollywood, Malibu, North Hollywood, San Fernando Valley, Santa Monica, Sherman Oaks, Studio City, Tarzana, Valley Village, West Los Angeles, Westchester.