Multiparty Check Including Mortgage Company and Attorney: How to Report?
When we issue a multiple party check that would include a mortgage company and an attorney, would we be responsible for sending a 1099 to the attorney or would the mortgage company? The attorney would be representing our insured on a disputed claim.
Such reporting situations are never easy. Nevertheless, it is important that you get them right. Particularly when it comes to the Form 1099-MISC and the IRS' renewed focus on enforcement regarding such payments.
Here is what you need to know:
Which Bankruptcy Chapters Are Exempt from Settlement Payments Related to Real Estate?
My title insurance company pays settlements for bankruptcy matters, specifically related to real estate. I understand that certain types of Bankruptcy attornies are exempt from 1099MISC reporting. Please detail which bankruptcy "chapters" (Chapter 7, 11, 13, etc) are exempt or is it all of them? Does this reporting exemption extend to bankruptcy trustees? How about to bankruptcy trusts or estates?
Payment Made in Exchange for Releasing Lien on Property: How Do I Report?
A couple gets divorced and the husband gets the house. He is trying to sell his property, but his ex-wife has put a lein on it. We settlement and pay the ex-wife $20K+ in exchange for the release of her interest in the property. A 1099MISC is issued for 2011 to the ex-wife with the amount shown in Box 3.
This evening, the ex-wife's accountant called and explained that the ex-husband owed child support and that the lien was a court order for this money that was due to the ex-wife. They are willing to send the court order as proof.
1) If this had been made clear at the beginning, would the settlement still be reportable on the 1099MISC?
2) Currently, I have not filed with the IRS yet. Assuming the answer to #1 above is non-reportable, would it be wise to take the documentation offered after the fact and update the 1099MISC (basically cancel it)?
Settlement payments are always tricking as is the associated reporting. We will answer your questions using the numerated convention you have provided and as follows:
Settlement Payment and Question as to Identity of Functional Beneficiary
A settlement payment was written to the insured (a corporation) and their lawyer, who I will refer to as Joe. I sent the 1099MISC to Joe, with the total settlement payment shown in box 14. I then heard back from Joe's law firm saying the 1099MISC should be made out to the law firm, not the individual.
I am confused on how to handle this. One the one side, your advise was as follows: "Almost always the reporting follows the payment (only in a select few unique situations such as those involving "middlemen" and/or attorney/settlement payments). Thus who you write the check out to is who you should report to. In general what has happened is that you have written the check (or otherwise generated a payment) in the ordinary course of your trade or business for services provided by the person and TIN named on the W-9 you collected prior to issuing payment. Thus, if you issued the check directly to the individual then you will report to that individual. (This happens all the time for example in medical service payments when doctors have the check cut to them but then turn around request the clinic they work for be issued the form 1099)." So I feel I should still report to the individual, Joe.
On the other hand, the law firm seems to be the functional beneficiary of the payment. So there may be a case for this as well.
1) How do you decide how to report in this case? 2) If you decide to go with the functional beneficiary (assuming that is a valid choice), what documentation should be collected to alleviate any issues that might come from a future IRS audit, where payment name would differ from the name that was reported on the 1099MISC (in this case, Joe)?
There are a couple issues here, but let's deal with the biggest first and then answer all of your questions as follows:
Documentation Needed for Attorney's and Attorney Trust Accounts for Settlements
My company pays many attorneys and attorney trust accounts for settlements that would be reportable in Box 14. Many attorneys claim that they do not need to provide W9's because their payments are non-reportable on the 1099MISC. I understand the two exceptions for reporting are:
– Payment to an attorney, acting in the capacity of a bankruptcy trustee, is exempt from reporting. But not for an attorney handling garnishments other than for bankruptcy.
– Payment to an attorney, acting in the capacity of a settlement agent in connection with the closing of a real estate transaction, is exempt from reporting. But not for an attorney handling other types of loans.
1) What would you suggest be collected to properly document these exceptions?
2) I believe that a W9 should still be provided to properly document these payees, to at least establish foreign vs US companies. Even if the attorney is truly non-reportable on the 1099MISC. Do you agree? If so, is there a case where the W9 would not need to be collected? Is there a case where the W9 should not be collected?
What documentation should I collect to prove these exceptions are met
Lawsuit Settled With Customer: Is Payment 1099 Reportable and How do we Handle the Attorney Portion?
Please see paragraphs below. Is the $1.65M 1099 Reportable and if so under who's ID? I also wanted to verify that the portion paid to the plaintiff's attorney would be processed in box 14 of 1099 Misc.
"We have settled a lawsuit with a Customer who sued us seeking revocation of their purchase agreement for an aircraft and a return of the purchase price.
The settlement is confidential. The total amount of the settlement is $1.9M. $250,000 of the total is to be paid to the plaintiff’s attorney for his attorney’s fees. We have prepared a check request for that amount and we will provide W-9 information for that law firm with the check request.
The balance of the settlement, $1.65M is to be paid to the bank who foreclosed on the aircraft. The plaintiff did not continue to make payments on the aircraft and the bank secured a rather large judgment against the plaintiff. The bank does not believe they should provide a tax id number nor should they receive a 1099 for this payment. I need to know if we must have someone’s tax id for this check. If yes, can it be the plaintiff’s tax id number? "
Forgiveness of Debt for Former Employee With Claims Against Company
We have an employee that was relocated for work. Since that time, the employee left the company rather than be terminated. As a result of leaving, the relocation costs of $12,500 are by contract due back to the company. The employee has made claims against the company, which he will drop in exchange for the forgiveness of the relocation costs due to us. The employee worked for part of one month in 2011 and will receive a W2 for that time, but is not currently an employee of the company.
If he were still an employee and we forgave debt, then we would report the forgiveness as income in his W2, subject to employment taxes. Since he is no longer an employee, I am not sure how we report the forgiven debt income. We are not a financial institution, nor any of the other entities required to file a 1099-C. My understanding of the 1099-MISC is that cancelled debt is not reported on the 1099-MISC form.
Does this mean that we do not have a filing requirement? Or should we treat the forgiveness of debt as related to the employee's work/employment with us and report it on the W2, paying only our share of the required employment taxes?
Payment of Settlement to Law Firm for Non-U.S. Claimant
We will be paying the full amount of a settlement directly to a law firm. The payment is not exempt from reporting to the claimant under the conditions specified in other questions on your website. However, the claimant is not a US citizen. Would we be required to report this on form 1042-S and withhold at the normal rate if the claimant does not have a US taxpayer id?
Form 1099-MISC Settlement Payment
My company is paying a claim settlement to an individual for their signature on a quit claim deed on some real estate property. Basically, this means that they are paid to relinquish all legal rights, real or otherwise, to that property.
Is this payment reportable? Or does this fall under the property exemption, as the amount is not fixed or determinable.
This can actually be a trickier situation than it appears it first reading. As such you will need to be careful.
Settlement Paid to German Person for Real Estate Sale In U.S.
I work for a title insurance company. I have a settlement of less than $100,000 being paid to a German individual for a real estate sale of their US property (in FL). It is being sold to a US company (an LLC). The realtor and closing agent basically stole the sale proceeds, and the settlement payment is protecting our insured (the buyer) by reimbursing those losses (so the property can be properly recorded, etc) to the German seller. The German seller has provided a W8BEN, but never applied for an ITIN.
The real estate was a home that was bought in the 80's by the German individual to be used by themselves and immediate family as a vacation residence in the United States. It was never used as a rental property. So this is definately not FDAP income.
The property was sold to an American LLC. I am not sure how the buyer plans to use the property, but I am guessing it is not important to the current situation.
1) I looked through pub 515, but do not see any exemption that applies specifically to the case above. Does this now verify that the 1042S is the proper reporting tool and the 10% withholding was correct? If not, what other info would you need to verify this?
2) Was an ITIN needed in order to withhold at a 10% rate? The rate stems from non-FDAP income (type of income) rather than a treaty benefit.
3) I think Income code 13 is more accurate rather than code 50 for this transaction. Does the further details supplied support this assumption?
First off, one big issue.
We are concerned with the facts that you have provided in so much as the payment you have made may not actually be considered disposition of real property.
Here is why and in addition please see below for the answers to your questions:
It may be considered payment under a title insurance policy.