Form 1099-MISC

Generally, any person, including a corporation, partnership, individual, estate, and trust that makes reportable transactions during the calendar year must file information returns to report those transactions to the IRS. However, a payer does not need to file Form 1099-MISC for payments not made in the course of the taxpayer’s trade or business. Thus, personal payments are not reportable. A payer is engaged in a trade or business if it operates for gain or profit. Nonprofit organizations are considered to be engaged in a trade or business and are subject to the reporting requirements.

Observation: The determination of whether a taxpayer is engaged in a trade or business, and thus liable for filing Forms 1099-MISC, is important for a couple reasons. While taxpayers may want to escape liability for filing Forms 1099-MISC by claiming they are not engaged in a trade or business, that can hurt them if (1) they want to avail themselves of the Code Sec. 199A deduction, which is only available to a trade or business, or (2) they want escape the reach of the NIIT (discussed below), which generally excepts a trade or business from the tax.

The type of reportable transaction determines the Form 1099 that must be filed. Most of the issues revolving around the filing of Forms 1099, involve Form 1099-MISC and the reporting of NEC. In general, a payer must file Form 1099-MISC for each person to whom the payer has paid during the year:

(1) at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest;

(2) at least $600 in rents, services (including parts and materials), prizes and awards, other income payments, medical and health care payments, crop insurance proceeds, cash payments for fish (or other aquatic life) purchased from anyone engaged in the trade or business of catching fish, or, generally, the cash paid from a notional principal contract to an individual, partnership, or estate;

(3) any fishing boat proceeds; or

(4) gross proceeds to an attorney.

In addition, Form 1099-MISC must be filed to report direct sales of at least $5,000 of consumer products made to a buyer for resale anywhere other than a permanent retail establishment. Form 1099-MISC must also be filed for each person from whom a taxpayer has withheld any federal income tax under the backup withholding requirement (discussed below), regardless of the amount of the payment.

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