Multiple Sellers of Property

[KBTS]

A client and his 2 siblings inherited their sister's home late last year. They listed it for sale and closed on the deal earlier this week. The closing company is saying its computer system is going to issue a 1099-S to each sibling in the full amount of the sale. They claim they cannot override this to show the correct allocation of the sale price as 1/3 to each sibling (even though the IRS instructions are clear that they are required to do so in this case). I know this is a 2013 issue, but my client is quite anxious about the situation.

Assuming the closing company would issue the 1099-S in the full amount of the sale to each sibling, how would I report this on my client's return to prevent a matching error with the IRS?

[Roland Slugg]

Every title company I have dealt with would issue a form 1099-S to each seller, reporting thereon only his share of the sale amount. I would guess that is what the title or escrow company will do in your case. When someone said the total selling price will be reported, this is probably what he meant. Reporting the full amount on everyone's 1099-S form would be a serious mistake.

[KBTS]

Every title company I have dealt with would issue a form 1099-S to each seller, reporting thereon only his share of the sale amount. I would guess that is what the title or escrow company will do in your case. When someone said the total selling price will be reported, this is probably what he meant. Reporting the full amount on everyone's 1099-S form would be a serious mistake.

I spoke to the closing company owner myself and they told me the FULL selling price would be on each 1099. Blamed it on the computer. Now maybe the owner is confused, but they have told my client the same thing. We are trying to resolve before they issue the 1099, but what if the form does get issued incorrectly?

[BP.]

I had multiple sellers who each received a 1099-S for the full selling price. The sellers consulted the 1099-S instructions before closing, and made an allocation request. The Forms 1099-S weren't issued with allocations, as requested. The issuing agents then agreed to an allocation and sent out updated Forms 1099-S. The same dollar amount was reported, but typed in the sales proceeds box above the dollar amount was the allocation percentage. Machine readable? We reported the taxable sale as the allocation percentage applied to each seller, and had no problem. This was 5 years ago.

http://www.irs.gov/pub/irs-pdf/i1099s.pdf

[Roland Slugg]

I would suggest that you provide to one of the sellers (or all of them) a copy of the instructions to Form 1099-S and ask him to bring to the attention of the title or escrow company the section "Multiple Transferors" on page 3 of those instructions.

[KBTS]

I would suggest that you provide to one of the sellers (or all of them) a copy of the instructions to Form 1099-S and ask him to bring to the attention of the title or escrow company the section "Multiple Transferors" on page 3 of those instructions.

I emailed that section to my client this afternoon and they planned to forward to the company. The last update I had was that the title company was contacting their accountant for guidance. Hopefully, the accountant will set them straight on this.

[Snaggletooth]

Nominee 1099-S

This is a skirmish in a huge war. Hoping desperately for years that these huge institutions would do things right. Banks. Brokerage companies. Colleges. Local Governments.

It's not going to happen. Ever. I hope the title company DOES in fact consult with an accountant who can set them straight.

But you might keep "Plan B" in the back of your mind in case the worst happens. Firstly, the most intuitive approach would be to inform the IRS of the situation so they will understand. This won't work unless you are able to write letters and get affadavits for YEARS, maybe NEVER. The IRS will receive a copy and if it is for the full amount, they will assume each heir DID receive the full amount and expect full income to be reported. If you claim the information is wrong, they will simply tell you to straighten it out with the title company. This puts you back to where you are today.

So.....do this, and be done with it. Report the entire proceeds for your client. However, prepare 1099-S nominee statements for the remaining share amounts...one for each heir. Yes, this requires getting their SS#s and addresses. On the line below where you reported the entire proceeds, reference the amount of the nominee statements under the "Cost" column with no Revenue. This way the total reported is correct.

It will be easier to explain the nominee costs to the IRS than to simply fail to report an amount on a single 1099-S.

But I hope the above turns out to be unnecessary for you.

[BP.]

The multiple-seller instructions themselves indicate that it could be possible that Forms 1099-S will (correctly) report the full sales proceeds on each form. If the allocation is not made, or is incomplete, or the allocations are conflicting, the issuer is instructed to use the full sales price. The possibility is permitted under the instructions that sales proceeds may wind up "over-reported."

Last year's Schedule D instructions (p. D-10) address the 1099-S issue, and give provision for reporting "incorrect" or nominee amounts.

http://www.irs.gov/pub/irs-pdf/i1040sd.pdf