Episode 37: Ask the Expert, Volume 4

SPEAKER_00 0:00

This week on Information Return Intelligence, it's another Ask the Experts. This is volume four of Ask the Experts. My name is Jason Dinison, and this podcast is powered by IOFM. Let's get started. This is Ask the Expert Volume four. We do this periodically where we take questions that have come in to us from various places, including the IOFM Ask the Expert section and other places where people have asked me ten ninety nine related questions and we feature some of them. First question I wanted to confirm my understanding on who was responsible for issuing ten ninety nines or ten forty two S for vendors that are paid by an epayables credit card. If I recall correctly, these should be issued by the bank issuing the card, as they are the ultimate payer. So the short answer here is that you are correct on the 1099 part, but not on the 1042S part. So let's expand on this. You do not issue a 1099 when you pay with a credit card or debit card on a 1099able transaction. So something like contract labor, you pay your contractor using your credit card. There's no reporting required by you. Instead, if a form is going to be issued, it'll be a 1099K and it will be the merchant processor, whoever is in the background actually handling that transaction, they'll be the ones issuing the reporting form to the contractor. That's anytime you make a payment with a credit card or debit card, you will not issue a 1099. Now the other piece of the question involved international Form 1042S. And the credit card exception does not apply to those kinds of transactions. So you retain the reporting requirements under 1042S rules. That would include backup withholding and issuing the form, etc. etc. Next question. This is a two part question. As an employee benefit, we use a vendor to provide legal advice and assistance. The vendor lists themselves as an S Corp on their W nine. Are these charges considered legal fees and therefore should be ten ninety nineable despite the vendor not being a ten ninety nine vendor? And then they go on to ask a second question. We use a vendor for legal advice and assistance. The vendor lists themselves as a C corp on their W nine. Are these charges considered legal fees and therefore should be ten ninety nine despite the vendor not being a ten ninety nine vendor? So if we summarize, the first question is this company has an employee benefit where they pay this outside vendor to provide legal advice to employees. And this vendor is an S-corp. Does the corporate exception apply, or is this a legal service where you still need to issue a 1099 even if they're a corporation? The second piece of the question is the business itself has a vendor that provides legal services to the business, and the vendor lists themselves as a C corp. Does the corporate exception apply, or would these be legal services that you would need to 1099? So the answer here is we need just a little more information about what's going on here, especially with the employee benefit piece. My assumption is that it must be an attorney or a law firm providing that service. Because usually state regulators and state bar associations would have a problem if someone was giving legal advice when not a licensed attorney or a law firm. However, it's a little murky in the question as to what exactly is going on here. If this vendor is an attorney or a law firm, then yes, it's 1099 on 1099 NEC, the corporate exception wouldn't apply. So the regulations specifically say attorney's fees are not subject to the corporate exception. And that means both individual attorneys and law firms. So presumably you're making payments for this employee benefit to an attorney or a law firm. If you are, then it's 1099 NEC. If somehow the party that you're paying is not an attorney or a law firm, then the corporate exception would apply. And the same thing would be with the second piece of this question, which is the legal services provided to the organization itself. I mean again, the assumption would be that it would be an attorney or a law firm providing the service, in which case it would be 1099 NEC. But if somehow it wasn't a law firm, then the corporate exception would apply. Before we go further, let's hear a word from our sponsor, IOFM. IOFM is the trusted source for education and information in the financial operations world, with a universe of over one hundred thousand financial operations professionals, growing certification and membership programs, and a keen understanding of the issues and content needs critical to the profession, IOFM is the trusted source of information in the rapidly evolving field of financial operations. Learn more about IOFM at IOFM dot com. And now back to the show. Next question we have a vendor that charges us to dump our concrete and asphalt at their location and they recycle it to make more. Is this ten ninety nineable? And the answer here is yes, it likely would be. Now why can't I ever just give a straight answer on these things? Well I say likely because the IRS doesn't explicitly say if this exact kind of asphalt recycling is ten ninety nineable, but it would seem to be a service, and if it's a service, service equals ten ninety nine ANEC. Keep in mind that things like the corporate exception, the credit card exception, dollar threshold, those could all apply. Next question it's a long one with actually a short answer. A faculty member submitted expense reports to be reimbursed for paying rent on behalf of a scholar who was not a student at the same university. The scholar was working on some lab equipment for the faculty member over the summer. Accordingly, would the university have an obligation to issue a ten ninety nine to the landlord since the services provided benefited the university? The short answer here is no. Think of who did you pay? You paid the professor or the faculty member. You paid a reimbursement to them, but you didn't actually pay the person who owned the property. The university didn't make any reportable payments, so there's no reporting obligation. Next question We recently reached a global settlement with three unrelated claimants represented by the same attorney. The funds are going to the attorney's trust fund. The settlement agreement is silent as to the allocation of the funds amongst the claimants, but it is taxable income. And so the question is do you have to issue a 1099 miscellaneous box three other income when you have an unknown number of claimants, or more specifically, I guess in this case, there's three unrelated claimants, and you don't know how the proceeds are being broken up. The answer is yes, you do have a reporting obligation. So if you know that the settlement is taxable but you don't know the allocation, then you'll need to determine one party on the claimant side to send the 1099 miscellaneous box three to. And then that person becomes what's called a nominee recipient who will then need to turn around and file 1099s to each of the other claimants. So say your total settlement is $150,000. You have one person's information out of three. So you send the 1099 miscellaneous to that one person showing $150,000. That person will then need to determine what is the share that belongs to the other two people, and they will need to issue a 1099 miscellaneous to those two people, showing the proper dollar amounts to get it allocated properly. The better scenario, of course, is to know what the allocation is and issue the ten ninety nines separately. However, in the real world there may be reasons why you can't get that information. It may not be possible. The other thing to keep in mind here is that if this is a taxable settlement, you have to issue a ten ninety nine, box three, which means at least one of the claimants is going to need to be cooperative with you on providing a taxpayer identification number for someone, because otherwise you're gonna have to backup withhold on this settlement. A question about phone service are payments to a phone communication company for monthly services reportable if they are an LLC with a partnership classification? The answer here is no. Now normally you would issue a ten ninety nine to a partnership. However, in this situation, communication services are not ten ninety nineable. It's in the regulations. Payments for merchandise, telegrams, telephone, freight, storage, and similar items not reportable. And these things were written long before things like the internet, Wi-Fi became a thing, high speed internet and all that. In fact, these regs I think were written before even dial up was a thing. But you notice telegrams, telephone, and similar items, internet, wifi, and such would fall under that heading of similar items. No need to send a 1099 for that sort of thing. Last question. Will the IRS allow you to submit two 1099 NECs to the same recipient for the same box with two different dollar amounts? The answer is yes, but you have to use the account number box on the form. And so on the 1099 NEC, there's a box in the lower left. It's on all of the 1099s. There's a box called account number. So you'll need to put something in that to differentiate the two forms. It can be whatever differentiating account number you want. You could put a one on one form and two on the other one. It doesn't matter. But you have to put something there. That's in the instructions, it's in publication ten ninety nine. I think my question would be why would you want to do it this way? If it's ten ninety nine NEC, why not just issue one form to this person? But the answer to the question is yes, you can do it this way. Just make sure that you use an account number. That does it for another episode of Information Return Intelligence powered by IOFM. We do this every week where we talk about different things in the 1099 world. Like and subscribe, share this with your colleagues, and check out all of our episodes at podcasts.dynasonmedia.com. We'll talk to you again next week. Dynason Media Ventures.