1099 Question

[Taxadvisor VA]

Business people do have a responsibility to file 1099's if the facts dictate that they do. How far do we go as tax preparers in our efforts to assist our clients? Case in point, client owns a rental property and hired a company (LLC) to paint the rental between tenants. I have advised my client to find out whether or not they are incorporated. Being an LLC is not a corporation as IRS looks upon it as a disregarded entity and for tax purposes, it is a sole proprietor. Now, if this LLC elects to be taxed as a corporation a Form 2553 can be filed requesting this treatment.

Sorry, I got off track. I think we have an ethical responsibility to have our clients check with these service providers to ensure what their entity status is b/c they could get fined if they were supposed to file a 1099 and didn't.

What do you think? How do you handle this situation?

Taxadvisor VA

[Jiggers]

Rentals don't have to issue 1099's.

However, in answer to your general question, I ask my Schedule C and F clients about payments that may require a 1099.

I may or may not do the 1099 for them.

In either case, they have to response yes or no, and if yes, did they issue the 1099.

I put that information on the Schedule C or F.

Of course, if I did the 1099's, I know the answer.

[Taxadvisor VA]

Rentals

Thank you for responding. Why is the question on the schedule E if rentals don't have to issue 1099's?

Thanks for your reply,

Taxadvisor VA

[Nashville]

Good Question

Tax Advisor, you're new and there has been a considerable discussion of this in the past.

Just to condense the positions and shorten the discussion:

1) I think IRS fully intends for a rental owner to issue 1099s if the recipient would ordinarily receive them
for services rendered, and recipient is not a corporation. As you say, why else would the question
be at the very top of Sch E.
2) Requirements for a 1099 declare that the reportable payment should be made for services rendered in the
course of business. IRS has gone to great lengths on occasion to state that a rental activity is not defined
as a business, and so one train of thought contends that a rental activity should not being issuing a 1099.

[Taxadvisor VA]

1099

Nashville (Sr Member)

Thank you for responding to this question.

I have received another response -

The way I read it is for rental property owners that 1099's must be issued for legal services, but not for other services, unless the rental property owner is "materially involved" or a real estate professional and thus in the business."

This would support what you are saying and as such- the driver here is "In Business". I don't think now in retrospect that someone renting one property is in the business of really doing this as an occupation per se.

I would agree that the 1099 requirement is really only there for people who are possibly a "Real Estate Professional'. Someone actively engaged in the business of renting properties.

Thanks again,

Taxadvisor VA

[taxea]

The question is there because 1. some rental owners use mgmt companies, which is a business. These companies may issue the 1099's on the owners behalf rather than their own EIN. 2. Perhaps the IRS figures it is only a matter of time before owners willl be required to issue 1099's....almost happened. They had updated the form and decided to just leave it that way. 3. Some Sch E's show both material and active participation.

IMO I would issue 1099's even, as the owner, if I am not required to do so. I would want documentation of the expense other than an invoice. I fail to understand why rentals are not considered businesses.

[Nashville]

Nashville (Sr Member)

Thank you for responding to this question.
Thanks again,

Taxadvisor VA

Taxadvisor, I appreciate very much your confidence in me as a senior member. Just be warned, however, that many of us claiming to be "senior members" simply want to leave in the minds of the reader the image of a sage, venerable, intelligent, wisdom-of-the-ages experienced breed.

When in some cases, actually nothing could be further than the truth. Black Bart, for example, can fit his tax knowledge into a thimble and is a refugee from Arkansas prison for tax evasion. FEDDuke is another one whose pedigree of a 12th grade education means he had been through the first six grades twice before he quit. ChEAr$ has a reputation for arguing with a fence post and losing. Sometimes you'll see posts from Snaggletooth, having lost several molars twisting off beer bottle caps in failed EA study sessions. Keep that in mind when reading Sr members whom you might think fit the personna of hoary-headed swains of knowledge.

I am so happy that my expertise and experience sets me apart from these other wisdom wanna-bes. There but for fortune could my life have wandered.

[ChEAr$]

When all is said and done,

Many of us here are seniors, AND we are also members of THETAXBOOK (tm) community.
That qualifies us all.
I know for a fact that Ron is a senior. (grin