Posted by MW/VA on 1/11/09 8:43am
Msg #274146

Question about 1099's

I have run into a rather complicated situation. There is one title co. that always lists me by name on the HUD (therefore, I am paid from the loans escrow). Got an email the other day that said their accountant told them they have to send 1099's. I am a tax preparer and this one makes no sense to me. The tc isn't paying me from their funds, but out of escrow funds.
They are, of course, acting as the agent for the lender/borrower in making the disbursements.
The money, however, isn't being paid by the tc actually, so I'm not seeing how a 1099 comes into play. I was asked to provide the IRS rule that says they don't have to. Looking for feedback here, especially from people like PAW. Thanks.

Reply by sue_pa on 1/11/09 10:05am
Msg #274147

I don't know your answer but what does it matter? Although I also was always under the impression we didn't get a 1099 when we are paid directly from the settlement sheet, bottom line to you is the same, no matter how they do their own bookkeeping.

Reply by MW/VA on 1/11/09 6:19pm
Msg #274189

Of course it is my responsibility to keep my records, report my income, & have tax liability for all earnings. It does change the way in which I prepare my return--listing all the 1099's (income reported to the IRS), and then adding any income not reported on a 1099. I have never gotten a 1099 from a tc where I am named on the HUD, because the money isn't theirs.
I work for a lot of tc's who don't name me on the HUD, and I do, of course, get a 1099 from them. I can't imagine that everyone on the HUD (brokers, etc.) get a 1099.

Reply by GA/Atty on 1/11/09 11:02am
Msg #274149

I have a client that buys a lot of real estate every year. The purchase monies flow through my trust account, and they send me a 1099 showing the payments to me.Of course I do not treat the funds paid to me in trust as income on my taxes, but more often than not I get a note from IRS asking me why I didn't report that extra couple of million dollars of income. I write back the short explanation and that's that.

Also, often when I close a sale of property with multiple sellers (most often brothers and sisters who have inherited it from their parent), for convenience (and at their request) the check I write might be made out to only one of them for the entire proceeds. And the 1099 will be sent out that way also. But that does not mean that only the one sibling is on the hook for all the taxes. My 1099 does not carry that much weight.

So - anyway - I would just keep good records and have an answer ready in case IRS asks you the question.

Reply by Susan Fischer on 1/11/09 11:08am
Msg #274150

Just throwing this out there, nothing to back it up, isn't

the 1099 just a reporting mechanizm? Wouldn't the title company be in the best position to do that reporting?

In our case, while the 1099 would be appropriate to send to individual notaries for reporting income accurately, it wouldn't be used by the TC as an 'expense' per se, since the funds came from disbursements of their clients, not from the TC's operating budget.

Who else, in this case, could generate the 1099? Not the borrowers, surely. And the lenders? It seems to me that lenders wouldn't have a mechanizm for tracking payments from escrow to individual notaries for each loan. Plus, the TC deals with many lenders. How else could our income from one TC be tracked?

I may be way off, and haven't finished my first cuppa coffee yet...but I just can't see how else to make sure the notary gets accurate income reporting.

John? PAW?

Reply by Ilene C. Seidel on 1/11/09 12:51pm
Msg #274155

My husband who is a tax accountant and tax law professor states it doesn't matter how you were paid, off HUD or out of operating account the title company should issue a 1099 if over $600.00.

Reply by MW/VA on 1/12/09 4:44pm
Msg #274270

Hi, Ilene. FYI I got an answer to my question today from the tc. Only individuals get 1099's, so if I am paid under my company name (LLC) there won't be one next year.

Reply by John_NorCal on 1/11/09 3:40pm
Msg #274165

Anyone paying over $600 is obligated to file an information return and issue 1099's. Technically, unless your gardener is incorporated and you pay him over $600 a year you too are obligated to issue a 1099.

Here's what the IRS has to say about it.

Who must file Information Returns?

Any person, including a corporation, partnership, individual, estate, and trust, who make reportable transactions during the calendar year must file information returns to report those transactions to the IRS. Persons required to file Information Returns to the IRS must also furnish statements to the recipients of the income. Filers who have 250 or more must file these returns electronically.

Reply by PAW on 1/11/09 7:50pm
Msg #274199

Thanks for the kudos, Marilyn. But, I don't have an answer to this question. I have received 1099's from some title companies when I was specifically named on the HUD, but I don't know if it is required by the title company to do so.

My -personal- take on it is that the TC would be liable to provide the 1099. It is the title company (or escrow company) that is entrusted to handle the financial disbursement of funds and therefore would be responsible for reporting the financial transaction information. Even though the transaction is made on the borrower's behalf, all proceeds are either sent to the title company in the TC's name, or sent to the recipient of disbursement by the title company on their checks from their account.

Reply by sueharke on 1/11/09 10:02pm
Msg #274205

I am replying as a CPA in this post. If they send you a 1099, just report it on a schedule C and take all the legal deductions to offset the income. The IRS and your state taxing agency will get the same form. I never said tax law made sense, but I have to work with what I am given with clients.

Reply by BobbiCT on 1/12/09 7:33am
Msg #274209

Receiving a 1099 makes no difference....

Since you are required to report all your income, as long as the income figures on the 1099 you receive match what you are paid, it doesn't matters if an over-cautious accountant wants to issue 1099s to everyone paid through a trust account.

It makes it easier for the escrow agent's clients and ultimate reporting liability; i.e., if John Doe seller paid over $600 to a person listed on the HUD, John Doe should issue the 1099. Odds are he's not even aware he has to do it, isn't sophisticated enough to prepare one, and would you want to give John Doe your EIN and address?

There is an IRS drill down list of who is responsible to issue the 1099 if #1 responsible doesn't issue it. In these spread the blame, penalty for not reporting worse than over reporting, sounds like a CYA accountant and title company. With no details, it could be as "agent for the title company paying a subcontractor", the accountant decided because your TOTAL payments exceed $600 it's safer to issue a 1099 than not. It doesn't matter what account the funds are issued from; it does matter WHO/WHAT is utimately responsible for paying the subcontractor. Real life example: Title abstractor paid $500 thru escrow account from seller's closing funds, no 1099 because "seller paid." Title abstractor paid by law firm $200 for Sally Jone's search and $400 for John Doe's search (and later reimbursed by client at closing); law firm issues 1099 because law firm was responsible for engagement and payment of fees.

NOT tax advice or an accountant, just example of why you may see this.

Reply by MW/VA on 1/12/09 7:44am
Msg #274211

Yes, I was thinking under the hat of tax preparer. A red flag went up on issuing a 1099 from funds that don't belong to them. Thanks for all the input, folks.

Reply by MW/VA on 1/12/09 4:34pm
Msg #274268

I got an answer to my question today from the tc company. 1099's have to be sent to individuals, but not to LLC or Corp. Therefore, if they pay me under my company name (an LLC) there won't be a 1099 next year. I thought this info might be useful to some of you.