IRS Requires Information Regarding 1099 Filings on Tax Return
Over the past few years, the IRS has gradually increased requirements pertaining to issuance of 1099s and some have taken a partial approach to compliance. New this year, the IRS has included questions on tax returns asking if taxpayers had a 2011 Form 1099 filing requirement and if that requirement was met. Since 2011 Forms 1099 should be furnished by January 31, 2012, please take a moment to assess your level of compliance and be mindful of the changes that will impact you as you file your tax return(s) for 2011.
If you file a Form 1120, 1120-S, 1065 or 1040 with Schedules C or E, please note the following two new questions on the return which you will be required to answer under penalty of perjury:
- Did you make any payments in 2011 that would require you to file Form(s) 1099?
- If “Yes,” did you or will you file all required Forms 1099?
Generally, if engaged in a trade or business, you are required to furnish 1099s to report interest payments of $10 or more, and for payments for services or rent of $600 or more to recipients. An exception to the 1099 reporting requirement applies if the recipient is a corporation other than an incorporated law firm. Forms 1099 do not need to be filed when payments are made to corporations; however businesses must file 1099s for payments to lawyers regardless of their entity type.
The 1099 filing requirement applies to everyone engaged in a trade or business. You are engaged in a trade or business if you operate for gain or profit. Personal payments are not reportable. Of note, rental activities, even in a partnership, are not required to file 1099s.
2011 Forms 1099 should be furnished to the recipient by January 31, 2012 and IRS copies along with the Form 1096 Transmittal must be filed with the IRS by February 28, 2012. An extension may be requested by contacting the IRS. Should you have questions about how to file an extension, please contact your Witt Mares tax professional. As an added resource, you may find information on the IRS website by clicking here.
Penalties for late filers can be steep. These penalties vary depending on the cause and apply to both paper and electronic filers. According to the IRS:
If you fail to file a correct information return by the due date and you cannot show reasonable cause, you may be subject to a penalty. The penalty applies if you fail to file timely, you fail to include all information required to be shown on a return, or you include incorrect information on a return. The penalty also applies if you file on paper when you were required to file electronically, you report an incorrect TIN or fail to report a TIN, or you fail to file paper forms that are machine readable.
The amount of the penalty is based on when you file the correct information return. The penalty is:
$30 per information return if you correctly file within 30 days (by March 30
if the due date is February 28); maximum penalty $250,000 per year
($75,000 for small businesses).
$60 per information return if you correctly file more than 30 days after the
due date, but by August 1; maximum penalty $500,000 per year ($200,000
for small businesses).
$100 per information return if you file after August 1 or you do not file
required information returns; maximum penalty $1,500,000 per year
($500,000 for small businesses).
Should you have questions about the 1099 filing process, please do not hesitate to contact your Witt Mares tax professional who will be glad to discuss your particular situation with you.