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@188 CHAP 4
┌─────────────────────────────────────────────┐
│ 1099s AND OTHER TAX INFORMATION RETURNS │
└─────────────────────────────────────────────┘
"No man's life, liberty, or property are safe
when the legislature is in session."
-- Gideon J. Tucker, 1860
As a general rule, every person engaged in a trade or busi-
ness must report to the IRS any payments of $600 or more
made to any person during the calendar year, for items such
as rent, compensation for services, commissions, and annui-
ties, plus other items of "fixed or determinable" income,
or to report interest, dividend, or royalty payments of $10
or more. In addition, recent legislation by Congress has
added a number of additional new tax reporting requirements
you need to be aware of (since there are also stiff new pen-
alties for failure to comply). The IRS has been given ad-
ditional staffing and ordered to vigorously enforce the
reporting rules. In addition to computerized document-
matching programs at IRS Service Centers, field revenue
agents are now routinely checking on information return
compliance as part of their tax audits.
Failure to properly issue (to recipients) and file informa-
tion returns may result in serious penalties. In most
cases, the penalty is up to $50 for each failure to file a
timely information return (including failure to file on
magnetic media where required or to file returns that are
machine-readable). A reduced penalty of $15 applies to re-
turns filed late, but within 30 days of the due date, or a
reduced penalty of $30 applies if over 30 days late but
filed by August 1 of the year in which due. Also, each
failure to furnish the recipient a copy of the statement
on time can result in a further $50 penalty.
Some of the more common information return filing require-
ments for a typical small or medium-sized business are
summarized below:
_____________________________________________________________
FORM NUMBER AND WHAT IS DUE DATES:
TYPE OF TRANSACTIONS REPORTED? TO RECI- TO IRS
REPORTED (THRESHOLD AMT.) PIENT
__________________________ ______________ _______ _______
FORM 1098 -- Statement of $600 or more Jan. 31 Feb. 28
mortgage interest for in- (To payor)
terest received by a
trade or business from
individuals
────────────────────────── ────────────── ─────── ───────
FORM 1099-B -- Statement Any amount Jan. 31 Feb. 28
for recipients of proceeds
from real estate, broker
and barter exchange trans-
actions
────────────────────────── ────────────── ─────── ───────
FORM 1099-DIV -- Statement $10 or more Jan. 31 Feb. 28
for recipients of dividends ($600 in
and distributions on stock. the case of
Also report liquidating liquidations)
distributions and backup
withholding
────────────────────────── ────────────── ─────── ───────
FORM 1099-INT -- Statement $10 or more Jan. 31 Feb. 28
for recipients of interest
income (and backup with-
holding)
────────────────────────── ────────────── ─────── ───────
FORM 1099-MISC -- State- $600 or more Jan. 31 Feb. 28
ment for recipients of ($10 for royal-
miscellaneous income, in- ties, or $5,000
cluding payments of rent, received from
prizes &awards, gross roy- direct seller)
alty payments, non-employee
compensation. Also used
to report sales to direct
sellers of consumer items
(Amway, etc.)
────────────────────────── ────────────── ─────── ───────
FORM 1099-OID -- Statement $10 or more Jan. 31 Feb. 28
for recipients of original
issue discount
────────────────────────── ────────────── ─────── ───────
FORM 1099-R -- Statement Any amount Jan. 31 Feb. 28
for recipients of total
distributions from re-
tirement plans, IRAs,
insurance contracts or
the like
────────────────────────── ────────────── ─────── ───────
FORM 1099-S -- Statement Any amount Jan. 31 Feb. 28
for recipients of proceeds
from real estate trans-
actions
────────────────────────── ────────────── ─────── ───────
FORM 8027 -- Employers' (Perform calcu- Jan. 31 Feb. 28
annual information return lations on (On Form
of tip income and alloca- the form) W-2)
ted tips for tips repor-
ted by employees and al-
located tips from a food/
beverage establishment
────────────────────────── ────────────── ─────── ───────
FORM 8300 -- Report of Over $10,000 Jan. 31 15 days
cash payments that are re- after
ceived by a trade a busi- trans-
ness (including multiple action
related transactions)
────────────────────────── ────────────── ──────── ───────
FORM 8308 -- Report of a All sales or Jan. 31 Attach
sale or exchange of an in- exchanges of (To both to Form
terest in a partnership, partnership the trans- 1065
involving certain unreal- interests feror and
ized receivables or sub- transferee)
stantially appreciated
inventory assets
────────────────────────── ────────────── ─────── ───────
FORM W-2 -- Wage and tax Any amount Jan. 31 Feb. 28
statement for wages, tips
and other compensation
paid to employees, and
income and FICA taxes
withheld
────────────────────────── ────────────── ─────── ───────
FORM W-2P -- Statement for Any amount Jan. 31 Feb. 28
recipients of annuities,
pension and other retire-
ment payments, except for
total distributions
____________________________________________________________
The 1099 series of information returns must generally be
filed together with a transmittal form, Form 1096.
OBTAINING SOCIAL SECURITY NUMBERS. Recently enacted laws
make it necessary for a business to obtain the name and
Social Security number or other tax identification number
of anyone to whom you make payments that you must report.
There is a $50 penalty for failure to obtain their tax iden-
tification number, unless you have a reasonable excuse
(such as their refusing to give you their number). If
they refuse to give you their number, YOU MUST WITHHOLD
20% OF WHATEVER AMOUNT YOU OWE THEM, AND DEPOSIT IT WITH
THE IRS, OR YOU WILL BE SUBJECT TO A PENALTY FOR FAILURE
TO WITHHOLD. Use Form W-9 to request a tax I.D. number
from a recipient.
Fortunately, there are a number of exemptions from the
various 1099 filing requirements listed above, which will
eliminate many of the people or companies to whom you are
likely to make payments of $600 (or other threshold amount)
or more. You don't have to report the following payments:
. To corporations (except certain corporations in the
medical field);
. Compensation to employees that is already reported
on their W-2s;
. Bills for merchandise, telegrams, telephone, freight,
storage, and similar charges;
. Rent payments made to real estate agents;
. Expense advances or reimbursements to employees
that the employees must account to you (the employ-
er) for; or
. To a governmental unit.
MAGNETIC MEDIA FILING REQUIREMENTS. Note that the IRS per-
mits you to file 1098 and 1099 forms (as well as certain
other information returns) on "magnetic media" (computer
tapes, etc.) rather than the actual paper forms, if certain
very specific formats for the computer tape or disk are
met. The IRS REQUIRES that certain information returns be
filed on magnetic media, if your business files 250 or more
such returns for a calendar year. These include Form 1098,
all of the 1099 series and W-2 series of information re-
turns, and various others such as Forms 5498 and 8027.
A "hardship waiver" to excuse you from having to file in
magnetic media format may be granted if you file a request
on Form 8508 at least 90 days in advance of the due date,
under certain circumstances.
Failure of a taxpayer to file an information return on mag-
netic media (or on a machine-readable form where magnetic
media filing is not required) when required to do so is
treated as a FAILURE TO FILE and can result in the imposi-
tion of applicable penalties for failure to file, as noted
above.
@CODE: CA
California has a whole body of tax information reporting
requirements practically identical to those for the IRS
Form 1099 series of information returns. Until recently,
California had its own series of information returns (Form
599 series). However, those forms were discontinued in
1987, and taxpayers may now file copies of federal 1099
forms with the state instead. Form 596 is still used to
transmit these information return forms, rather than fe-
deral Form 1096. Be aware that California also has mag-
netic media filing requirements similar to those of the
federal law.
Effective as of 1991, trades and businesses in California
receiving cash payments in excess of $10,000 are required
to file a copy of the IRS information return, Form 8300,
with the state Franchise Tax Board. (Note that, under
both federal and California law, "cash" now includes most
kinds of monetary instruments, including checks other than
personal checks. A copy of the federal Form 8300 must be
filed with the FTB within 15 days after the reportable
transaction occurs.
@CODE:OF
@CODE: LS
@STATE requires all citizens to inform on each other,
by filing information returns. Violators are deported
to Cuba.
@CODE:OF
@CODE: HI
Hawaii also requires businesses to file information returns
(Form N-199 series). The rules are generally identical to
the federal Form 1099 series filing requirements. A sum-
mary and transmittal of Forms N-199 for the preceding cal-
endar year must be filed by the last day of February, with
Form N-196 (similar to federal Form 1096).
@CODE:EN
In addition to the requirement that you file 1099s with the
IRS, you may have to file similar state forms or copies of
the federal 1099 forms with state taxing authorities.