Would scrap be merchandise?

[taxgirl]

I have a client that purchases recyclable material from individuals. Would that be considered merchandise for the 1099 exclusion?

[mastertaxguy]

One might wonder if your client is making retail purchases. As for "merchandise", I have never found recyclable metals for sale at Target(r), Meijer's(r), or Walmart(r). However, it may not matter.

In any event, there are some U.S. Tax court cases dealing with taxpayers in businesses similar to your description (buyers and sellers of scrap metal) where records of purchases (names, dates, amounts, etc) were found lacking to the detriment of the taxpayer. See T.C. Memo. 1997-27, Bobry. So whether 1099-MISC forms are issued or not, record keeping of items acquired and from whom and for what amount is key.

If the purchases are from dealers in scrap materials, one might conclude no 1099-MISC is needed from the purchaser (but other transaction records are needed) unless payment is to perhaps an individual (such as the neighbor behind us with a back yard full of "priceless" metal treasurers gathering rust). Records of to whom payment was made (always cash it seems), date, time, address, etc. would be a must.

On the other hand, those in that "industry" may be reticent to provide requirement information for a 1099-MISC.

[Lion]

Are they providing a service, such as hauling the scrap to you? Or, are they selling the scrap without any services? You can always send Forms 1099-MISC, even when they are not required. The regulations tell you when you MUST send 1099s, but they do not prevent you from sending.

[ATSMAN]

All good points. I too have a client that buys stuff at tag/garage/estate sales then fixes them up and sells them out of his garage and e-bay. He also buys and sells scrap metal that is hard to haul for the average homeowner like large appliances etc. I told him to run it as a business and expect a 1099-K from e-bay if he crosses the limit etc.

Lion make a valid point that you can always send a 1099-Misc. Now the practical issue is that the seller may stop doing business with you if it is all cash sales in these situations.