Ask the Experts, Volume 4

Question: I wanted to confirm my understanding on who was responsible for issuing 1099’s/1042-S’s for vendors that are paid by an e-payables credit card. If I recall correctly, these should be issued by the bank issuing the card, as they are the ultimate payor.

Answer: You are partially correct. When you pay with a payment card (credit card, debit card), you do not have a Form 1099 reporting obligation. The processor in the background — whoever that party is — sends a 1099-K to the vendor. See regulation 1.6041-1(a)(1)(iv). However, there is no such rule relating to Form 1042-S transactions. You retain the reporting obligation (including potential backup withholding) on any 1042-S transaction, regardless of how you pay. 

Question: (Editor’s note: In two parts!)

1. As an employee benefit, we use a vendor to provide legal advice/assistance. The vendor lists themselves as an S-Corp on their W-9. Are these charges considered legal fees and therefore should be 1099able, despite the vendor not being a 1099 vendor?
 
2. We use a vendor for legal advice and assistance. The vendor lists themselves as a C-Corp on their W-9. Are these charges considered legal fees and therefore should be 1099, despite the vendor not being a 1099 vendor?

Answer: The answer is “it depends.” Presumably, if one is providing legal advice, they must be an attorney. If somehow they are not an attorney, then the corporate exception would apply. Regulation 1.6041-3(p)(1) specifically says “attorney’s fees.” This means both individual attorneys and law firms. If your vendor is neither an attorney nor a law firm — so, not legally engaged in the practice of law — then the corporate exception would apply. As said, though, it would seem to be rare that one is able to provide legal advice without being an attorney or a law firm.

Question: We have a vendor that charges us to dump our concrete and asphalt at their location and they recycle it to make more. Would this be 1099 reportable?

Answer: Yes, this type of payment would likely be considered a “service” and thus would need to be reported on a 1099-NEC (unless the recipient of the payment is a corporation or is otherwise exempt from reporting). I say “likely” because the IRS never explicitly says if this exact type of thing is a service, but it would seem to be.

Question: A faculty member submitted an expense report 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 1099 to the landlord since the services provided benefited the university?

Answer: The short answer is no. The university made no payments, and so has no 1099 obligation. 

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. We will report the funds to the attorney on a 1099-MISC (gross proceeds paid to an attorney), but do we have a 1099-MISC (other income) reporting requirement for the claimants since we don’t know how much each claimant will receive?

Answer: This is a difficult situation. If you know that the settlement is taxable but don’t know the allocation, you will need to determine one party on the claimant side to receive a 1099-MISC (box 3). That party then becomes a nominee recipient, who will need to then file 1099s to each claimant. 

Example: the total settlement is $200,000. You have one person’s information, so you send the 1099-MISC to that person. If their share is $50,000, and three other people are also getting $50,000, then that person will themselves issue a 1099-MISC to the other three people for $50,000 each.

The better scenario would be to know what the allocation is and issue 1099s separately, but there are also realities involved in legal settlements where this may not be possible. 

Keep in mind, backup withholding rules apply to legal settlements. The claimant(s) will need to be cooperative with you on providing at least one party’s TIN, or else you will have to backup withhold.

Question: Are payments to a phone communication company for monthly services reportable if they are an LLC with a partnership classification?

Answer: No, this would not be reportable. See the instructions to 1099-NEC which state that a 1099-NEC does not need issued for, among other things: “Payments for merchandise, telegrams, telephone, freight, storage, and similar items. The legal citation would be regulation 1.6041-3(c).

Question: Will the IRS allow you to submit two 1099-NEC to the same recipient for the same box, two different dollar amounts?

Answer: Per the IRS’s General Instructions for Certain Information Forms (aka Publication 1099), https://www.irs.gov/pub/irs-pdf/i1099gi.pdf you would need an account number on the form (this is the box in the lower-left of Form 1099-NEC) if issuing the same type of form to the same person in the same year. See the IRS’s discussion of account numbers in Item L, which start on Page 16 of the 2026 publication.