1099 Reporting of Settlements and Payments to Attorneys

On Demand Webinar

Webinar Details $219

  • Rated:
  • Webinar Length: 100 Minutes
  • Guest Speaker:   Steven Mercatante
  • Topic:   Taxation and Accounting
  • Credit:   CPE 2.0, IRS 2.0, ATATX 1.5
All Access Membership

The IRS is paying close attention to third-party payers, including small and mid-size businesses, and how they report payments made to subcontractors, attorneys, architects and other service providers on Form 1099-MISC. 

During this must-attend session our expert speaker will explore:

  • How to comply with IRS rules when reporting attorney fees and other third-party payments 
  • Documentation requirements and instructions for forms 1099-MISC 

Plus, you will learn what your organization needs to be doing now to be meet reporting deadlines and ensure compliance including:

  • How Form 1099-MISC reporting requirements have expanded 
  • How to report punitive legal damage awards and gross proceeds paid to attorneys
  • Handling of multiple 1099s
  • Which payments are taxable and reportable and which are considered exceptions
  • Handling 1099 reporting for settlement agreements
  • Whether attorney fees are reported in box one of the 1099-NEC or box ten of the 1099-MISC
  • Learn when an LLC is not reportable as a corporation and when it is as a company
  • Discover how to report multi-member LLC's with corporate owners 
  • Address reporting issues cropping up with incorporated legal service providers

Learning Objectives:

  • How to report punitive legal damage awards and gross proceeds paid to attorneys
  • Which payments are taxable and reportable and which are considered exceptions
  • Learn when an LLC is not reportable as a corporation and when it is as a company

Level: Intermediate
Format: Recorded webcast
Instructional Method: QAS Self Study
NASBA Field of Study: Taxes
Program Prerequisites: None
Advance Preparation: None

  1. Introduction
  2. Overview 00:01:27
  3. 1099-NEC 00:09:32
  4. The Form 1099-NEC and Attorney Reporting - Reportable Payments 00:15:00
  5. 1099-MISC 00:17:52
  6. The Form 1099-MISC and Claimant/Attorney Reporting 00:20:12
  7. The W-9 00:40:17
  8. Attorney and Settlement Payees Starting Point 00:52:35
  9. Attorney and Settlement Issues: Reporting - Form 1099-MISC 01:00:05
  10. Attorney and Settlement Issues: Reporting - Form 1099-MISC Box 3 01:01:07
  11. Attorney and Settlement Issues: Reporting - Watch Out For That Non-Fixed and Determinable Exception 01:10:09
  12. Form 1099-MISC and Attorney and Settlement Reporting - Punitive Damages and Back Pay 01:15:57
  13. Attorney and Settlement Reporting - Reporting Obligations 01:25:30
  14. Attorney and Settlement Reporting - Special Rules on Delivery 01:28:25
  15. Attorney and Settlement Reporting  - One Final Example 01:31:46
  16. Attorney and Settlement Reporting  - Form 1099-MISC Box 10 01:32:49
  17. Attorney and Settlement Reporting  - Form 1099-MISC Box 10 Exceptions 01:33:14
  18. Protect Yourself 01:35:37
  19. Attendee Questions 01:37:30
  20. Presentation Closing 01:42:43
  • Adjusted Gross Income 00:37:05
  • Asset 01:27:03
  • Audit 00:08:42, 00:27:38, 00:52:48
  • Backup Withholding 00:43:28, 01:26:45, 01:29:44
  • Compensatory Damages 00:24:37, 00:53:21, 00:54:56, 01:17:19, 01:21:41
  • Contract 01:31:54
  • DBA -Doing Business As 00:51:40
  • Department of Labor (DOL) 00:06:53
  • Disregarded Entity 00:45:02, 00:51:48
  • Due Diligence 00:02:14
  • Exempt 01:12:30
  • FATCA 00:11:59, 00:13:00, 00:18:00, 00:47:19
  • FIRE - File Information Returns Electronically 00:02:53, 00:04:12
  • Form 1042-S 00:08:15, 00:48:05
  • Form 1099 00:21:02, 00:23:47, 00:30:44
  • Form 1099-INT 00:15:43, 01:20:30
  • Form 1099-MISC 00:03:23, 00:05:19, 00:09:40, 00:11:46, 00:13:46, 00:17:54, 00:20:47, 01:01:26, 01:20:29, 01:25:15, 01:25:46
  • Form 1099-NEC 00:03:42, 00:05:19, 00:09:39, 00:11:02, 00:13:47, 00:20:23, 01:02:29, 01:25:40
  • Form W-2 00:15:42, 1:03:58, 01:20:42, 01:25:12
  • Form W-8 00:08:14, 00:12:21, 00:47:43
  • Form W-9 00:05:54, 00:12:38, 00:40:27, 00:44:13, 00:47:26
  • Garnishments 01:33:36
  • Gross Proceeds Payment 00:02:36, 00:21:25
  • Independent Contractor 00:06:42
  • Information Returns Intake System (IRIS) 00:02:54, 00:04:06
  • IRC Section 3406(a) 00:02:29, 01:29:43
  • IRC Section 6041(a) 00:02:20, 01:00:13, 01:29:31
  • IRC Section 6045 00:02:24, 01:00:16, 01:06:35, 01:26:40, 01:29:29
  • IRC Section 6109(a)(2) 01:33:01
  • Limited Liability Company (LLC) 00:44:59, 00:51:46
  • Profit 01:32:08
  • Punitive Damages 00:24:43 00:53:22, 00:54:40, 01:16:00
  • Reasonable Cause 01:14:13
  • Severance Pay 01:25:20
  • Sole Proprietor 00:45:03, 00:51:49
  • Tax Gap 00:01:35
  • Tax Shelter 00:13:07
  • TIN 00:43:25, 00:51:37, 01:06:21, 01:26:40, 01:32:57
  • Transaction 00:05:39, 01:06:10, 01:28:31
  • Transmitter Control Code (TCC) 00:03:01
  • Vendor 00:43:41, 00:47:28
  • Wage 01:03:55, 01:23:13, 00:24:31

Adjusted Gross Income (AGI) : Adjusted gross income, also known as (AGI), is defined as total income minus deductions, or "adjustments" to income that you are eligible to take.

Asset: Property owned by a person or company, regarded as having value and available to meet debts, commitments or legacies.

Audit: A formal examination of an organization's or individual's accounts or financial situation

Backup Withholding: Backup withholding is the tax that is levied on investment income, at an established tax rate, as the investor withdraws it. Backup withholding helps to ensure that government tax-collecting agencies (such as the IRS or Canada Revenue Agency) will be able to receive income taxes owed to them from investors' earnings. (www.investopedia.com)

Compensatory Damages: A sum of money awarded in a civil action by a court to indemnify a person for the particular loss, detriment, or injury suffered as a result of the unlawful conduct of another. Compensatory damages provide a plaintiff with the monetary amount necessary to replace what was lost, and nothing more.

Contract: A written or spoken agreement, especially one concerning employment, sales, or tenancy, that is intended to be enforceable by law.

D-Notice: If you received an LT16 A/D notice, it's because he IRS is trying to collect unpaid taxes from you and/or their files show they're missing tax returns from you. It is essential that you take action in order to avoid potential enforcement action, which can include seizing your assets or wages. Enforcement action could also include the filing of a notice of federal tax lien, which could affect your credit score and ability to borrow.

DBA -Doing Business As: Sometimes it makes sense for a company to do business under a different name. To do this, the company has to file what's known as a DBA, meaning "doing business as." A DBA is also known as a "fictitious business name," "trade name," or "assumed name."

Department of Labor (DOL): The United States Department of Labor is a cabinet-level department of the U.S. federal government responsible for occupational safety, wage and hour standards, unemployment insurance benefits, reemployment services, and some economic statistics; many U.S. states also have such departments.

Disregarded Entity: A disregarded entity refers to a business entity with one owner that is not recognized for tax purposes as an entity separate from its owner. A single-member LLC ( “SMLLC”), for example, is considered to be a disregarded entity. (www.pntax.com)

Due Diligence: Due diligence is a process or effort to collect and analyze information before making a decision or conducting a transaction so a party is not held legally liable for any loss or damage. The term applies to many situations but most notably to business transactions.

Exempt : Exempt employee is a term that refers to a category of employees set out in the Fair Labor Standards Act. They do not receive overtime pay, nor do they qualify for the minimum wage

FATCA: FATCA was enacted in 2010 by Congress to target non-compliance by U.S. taxpayers using foreign accounts. FATCA requires foreign financial institutions (FFIs) to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. (www.treasury.gov). FACTA (Fair and Accurate Credit Transactions Act) is an amendment to FCRA (Fair Credit Reporting Act ) that was added, primarily, to protect consumers from identity theft. The Act stipulates requirements for information privacy, accuracy and disposal and limits the ways consumer information can be shared.

FIRE - File Information Returns Electronically: The IRS FIRE system is the electronic network used to accept and process most types of filing forms. Technically, it stands for File Information Returns Electronically.

Form 1042-S: Form 1042-S is used to report amounts paid to foreign persons (including persons presumed to be foreign) who are subject to income tax withholding. For an individual taxpayer, Form 1042-S is a document provided to you (and the IRS) by the payer of the income reported.

Form 1099: Form 1099 is one of several IRS tax forms used in the United States to prepare and file an information return to report various types of income other than wages, salaries, and tips (for which Form W-2 is used instead). - Wikipedia (https://en.wikipedia.org/)

Form 1099-INT: Form 1099-INT is the IRS tax form used to report interest income. The form is issued by all payers of interest income to investors at year end and includes a breakdown of all types of interest income and related expenses. Payers must issue Form 1099-INTs for any party to whom they paid at least $10 of interest during the year.

Form 1099-MISC: The Form 1099-MISC is an Internal Revenue Service (IRS) tax return document used to report miscellaneous payments made to nonemployee individuals, such as independent contractors, during the calendar year. (www.shrm.org)

Form 1099-NEC: In the context of 1099 tax filing, NEC stands for “Nonemployee Compensation” (the first letters of the three words None, Employee and Compensation). Most tax payers recognize NEC as box 7 on Form 1099-MISC. NEC is used to report income paid to independent-contractors / the-self-employed (referred to as 1099 employees for simplification purposes). So, while employers report income that gets paid to employees on Box 1 (Wages, tips, other compensation) of the W2 form, payers report income that gets paid to none-employees on Box 7 (NEC) of the 1099-MISC form. As an individual, if you received form 1099-MISC instead of Form W-2 then the payer did not consider you an employee and did not withhold income tax or social security and Medicare tax.

Form W-2: Form W-2 is an Internal Revenue Service tax form used in the United States to report wages paid to employees and the taxes withheld from them. Employers must complete a Form W-2 for each employee to whom they pay a salary, wage, or other compensation as part of the employment relationship. - Wikipedia (https://en.wikipedia.org/)

Form W-8: Form W-8 is filled out by foreign entities (citizens and corporations) in order to claim exempt status from certain tax withholdings. The form is used to declare an entity's status as non-resident alien or foreign national who works outside of the United States.

Form W-9: Form W-9 (officially, the "Request for Taxpayer Identification Number and Certification") is used in the United States income tax system by a third party who must file an information return with the Internal Revenue Service (IRS). It requests the name, address, and taxpayer identification information of a taxpayer (in the form of a Social Security Number or Employer Identification Number). - Wikipedia (https://en.m.wikipedia.org/)

Garnishment: A legal summons or warning concerning the attachment of property to satisfy a debt

Gross Proceeds Payment: When a business sells an asset, whether tangible or intangible, it receives a payment, which is the gross proceeds. The amount includes the costs of production and other costs and expenses related to the transaction.

IRC Section 3406(a): Requires that, under certain circumstances, including the payee's failure to provide a TIN, the payer must perform backup withholding.

IRC Section 6041(a): Provides that persons engaged in trade or business must report certain payments on an information return.

IRC Section 6045: Every person doing business as a broker shall, when required by the Secretary, make a return, in accordance with such regulations as the Secretary may prescribe, showing the name and address of each customer, with such details regarding gross proceeds and such other information as the Secretary may by forms or regulations require with respect to such business.

IRC Section 6109(a)(2): Requires that a payee provide a TIN to the payer when the payment will be reportable on an information return.

Independent Contractor: An independent contractor is a person or entity contracted to perform work or provide services to another entity as a non-employee. As a result, independent contractors must pay their own Social Security and Medicare taxes. - Investopedia (https://www.investopedia.com/)

Information Returns Intake System (IRIS): The Information Returns Intake System (IRIS) Taxpayer Portal is a system that provides a no cost online. method for taxpayers to electronically file Form 1099 series. The Taxpayer Portal allows you to enter. data to create Forms 1099 by either keying in the information or uploading a .csv file.

Limited Liability Company (LLC): An LLC is a corporate structure where members cannot be held accountable for the company’s debts or liabilities. This can shield business owners from losing their entire life savings if, for example, someone were to sue the company. Can be a single member (much like a sole proprietor) or a multi-member. It shares certain traits of both corporations as well as partnerships or sole proprietorships. It is not a corporation.

Profit: A financial gain, especially the difference between the amount earned and the amount spent in buying, operating, or producing something.

Punitive Damages: Punitive damages, or exemplary damages, are damages assessed in order to punish the defendant for outrageous conduct and/or to reform or deter the defendant and others from engaging in conduct similar to that which formed the basis of the lawsuit.

Reasonable Cause : Reasonable cause is based on all the facts and circumstances in your situation. The IRS will consider any reason which establishes that you used all ordinary business care and prudence to meet your federal tax obligations but were nevertheless unable to do so.

Severance Pay: An amount paid to an employee upon dismissal or discharge from employment. Severance pay is usually given by an employer to its employees who are laid off or terminated for reasons other than firing-for-cause. ... In general, severance pay is up to the employer's discretion and is only legally required under specific circumstances.

Sole Proprietor: A business that legally has no separate existence from its owner. The sole proprietorship is the simplest business form under which one can operate a business. The sole proprietorship is not a legal entity. It simply refers to a person who owns the business and is personally responsible for its debts.

TIN: A Taxpayer Identification Number is an identifying number used for tax purposes in the United States and in other countries under the Common Reporting Standard. In the United States, it is also known as a Tax Identification Number or Federal Taxpayer Identification Number.

Tax Gap: The gross tax gap is the difference between true tax liability for a given tax year and the amount that is paid on time. It is comprised of the nonfiling gap, the underreporting gap, and the underpayment (or remittance) gap.

Tax Shelter: A tax shelter is any legal strategy you employ to reduce the amount of income taxes you owe. After receiving much attention in the news in recent years, the term "tax shelter" has a negative connotation relating to deceptive and illegal schemes to evade income tax.

Transaction: In QuickBooks, a transaction type identifies what kind of transaction occurred, such as a customer transaction, bill payment or a bank transfer. When you submit a transaction, you type in a transaction code to represent it.

Transmitter Control Code (TCC): The Transmitter Control Code (TCC) is an identifier that the IRS uses to distinguish different electronic filing companies. It's necessary when you need to file for a correction. Getting a TCC depends on how you file your 1099 forms

Vendor: A vendor is a person or business that supplies goods or services to a company. Another term for the vendor is the supplier. In many situations, a company presents the vendor with a purchase order stating the goods or services needed, the price, delivery date, and other terms.

Wage: A fixed regular payment, typically paid on a daily or weekly basis, made by an employer to an employee, especially to a manual or unskilled worker.

Guest Speaker

  • Steven Mercatante

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