1099-MISC for LLCs?

[Corduroy Frog]

I've asked before but the answers went in several directions. Rather than pick one that suits me, I thought I would ask again.

Under Tennessee tax law, all LLCs are defined as corporations. Being as where they can't tax individuals, defining an LLC as a corporation gives the state millions in additional revenue. A corporate tax return (our F&E return) is required of all LLCs.

Many companies believe the definition as a corporation under TN law means they are EXEMPTED from receiving 1099s.

I don't believe the Federal requirements will honor Tennessee's definition. However, just what ARE the Federal requirements?

Does the payer need to know whether the LLC has elected Sch C, 1065, 1120, or 1120S status before they decide whether the recipient is due a 1099? I don't think so. The payer doesn't have this kind of visibility and should not be forced to inquire.

If YOU were the payer and during the year had paid an LLC over $600 to perform labor, what would YOUR position be?

[Koss]

Form W-9

This is not a complete answer, but rather an observation:

Block 3 of Form W-9 does in fact require the payee to identify the tax classification of an LLC.

The requirement to issue a 1099 (or the lack of such a requirement) arises under the Internal Revenue Code. Because the Code does not really recognize an LLC, the payer arguably needs to know the tax classification in order to determine whether a 1099 must be issued.

BMK

[Kram BergGold]

Need to know

An LLC filing as a Schedule C or 1065 would require a 1099
An LLC filing as a corporation would not except for medical payments and payments to lawyers.
If all LLC's in TN are corporations and file as such, why are you asking about Schedule C, LLCs?

[TaxGuyBill]

Under Tennessee tax law, all LLCs are defined as corporations. Being as where they can't tax individuals, defining an LLC as a corporation gives the state millions in additional revenue. A corporate tax return (our F&E return) is required of all LLCs.

If they are "defined" as a corporation, then they ARE a corporation, including for Federal purposes. If they are TAXED as a corporation, that could be different. Can the LLC be file a TN corporate return and file a Federal Schedule C, or is that part of your question?

Many companies believe the definition as a corporation under TN law means they are EXEMPTED from receiving 1099s.

If the IRS recognizes the LLC as a corporation (or taxed as a corporation for Federal purposes), they aren't necessarily "exempted from receiving" 1099s. The payers are just not REQUIRED to send them a 1099. The payer can just send a 1099 if they choose to.

[Koss]

Tax Classification

TaxGuyBill wrote:

If they are "defined" as a corporation, then they ARE a corporation, including for Federal purposes.

I have to disagree. The state tax law in Tennessee may be weird, but I don't think that makes a difference.

Here in Ohio, an individual can form an LLC with only one member. He can then make a federal tax election to be an S corp or a C corp. This federal tax election does not transform the LLC into a corporation under Ohio state law. Under Ohio law, it continues to be an LLC.

Conversely, in Tennessee, the fact that the state treats an LLC as a corporation has no effect on its classification under federal tax law. It may be a corporation under Tennessee law, but if it is a single-member LLC and it has not made an election, then under federal tax law it is a disregarded entity, and the guy would still file a Schedule C.

Under state law, it can't be an LLC and a corporation at the same time. What the original post says is that it is taxed as a corporation for purposes of state tax law. But it remains an LLC for all other purposes. I don't think the IRS is going to pay any attention to how the LLC is treated under Tennessee tax law. If it is an LLC, it is not a corporation for federal tax purposes.

I stand by my original answer. It appears that in order for a payer to determine whether a 1099 must be issued to an LLC, the payer needs to know the tax classification of the LLC. This is why this information is required on Form W-9.

A payer is not required to use Form W-9. They can use their own form. But they need to collect the information that is required by Form W-9.

The form and the instructions are not the federal tax law, or even the Treasury Regulations. But the form and the instructions are usually an accurate reflection of the IRS interpretation of the law and regs.

BMK

[taxea]

The issuing of a 1099 to anyone is based on whether the issuer is a business. What is the TP's status?

[Corduroy Frog]

Tax Status ONLY; not legal status

I have to disagree. The state tax law in Tennessee may be weird, but I don't think that makes a difference.
BMK

Thanks to all who have responded. Will try to clear up some questions. Burton, your line of thought might be closer to the situation.

In this state, an LLC is considered the same as a corporation for TN tax purposes only. This is true regardless of whether the LLC
elects to be a proprietor, partner, C Corp, or S Corp.

The LLC is NOT considered the same as a corporation for legal purposes. Otherwise there would be no distinction in the TN code for an LLC.

I can tell you if the payers have to split hairs on a W-9, or make another round of inquiries beyond getting the tax reporting #, they will not do this. They will simply give a 1099 to all LLCs and be done with it. If, on the other hand the Federal requirements will honor the Tennessee definition of a corporation (and I don't think they would), then the LLC is off the hook.