1099 Reporting Issues for 2011

Tax law requires businesses to provide information returns, such as 1099s, to each payee that the business has paid $600 or more for the year.  In general, a business (not individuals) should issue a 1099-MISC to each person (i.e. individual, LLC, or partnership) that provides at least $600 in rents or services in a calendar year.  A business is not required to issue a 1099-MISC to a corporation (C or S corporation).  Only payments made in the course of a trade or business should be reported.

In most instances, 1099s must be provided to the recipient by January 31st.  Returns must be submitted to the IRS by February 28th.  The method of filing 1099s with the IRS depends upon the number of forms.  If a taxpayer is required to file 250 or more information returns, these returns must be filed electronically (IRS Pub. 1220 contains details on the reporting procedures – http://www.irs.gov/pub/irs-pdf/p1220.pdf).  The 250-or-more requirement applies separately to each type of form. For example, if you must file 500 Forms 1098 and 100 Forms 1099-A, you must file the Forms 1098 electronically, but you may mail paper copies of the Forms 1099-A.  Taxpayers who are required to file returns electronically and who fail to do so (and who do not obtain a waiver) may be subject to a penalty of $50/return. 

The best method to obtain the information needed to prepare Form 1099-MISC is to request that each of your service providers furnish you with a completed Form W-9 (http://www.irs.gov/pub/irs-pdf/fw9.pdf).

For 2011, the IRS has made several changes to the Federal tax forms.   Specifically, on the Forms 1120, 1120-S, and 1065, they have added two new questions – 1) Did the partnership/corporation make any payments in 2011 that would require it to file Form(s) 1099? and 2) If the answer is yes, the partnership/corporation must then indicate whether it has or will file all of the required Form(s) 1099?

Prior tax law provided for penalties for failure to file the required information returns with the IRS.  The Small Business Jobs Act of 2010 has significantly increased these penalties. The penalties are based on how late the returns are filed with the IRS or provided to the recipient and are broken down into three tiers:

  • Tier 1 – returns file or provided late within 30 days of the prescribed due date.
  • Tier 2 – returns filed or provided more than 30 days after the prescribed due date and before August 1 of the calendar year in which the filing was required.
  • Tier 3 – returns filed or provided after August 1 of the calendar year in which the filing was required.

The penalties are outlined below:

  Small Business Penalty General Penalty
Corrected within 30 days $30/return (max $75,000) $30/return (max $250,000)
Corrected by August 1 $60/return (max $200,000) $60/return (max $500,000)
Corrected after August 1 $100/return (max $500,000) $100/return (max $1,500,000)

Also, the minimum penalty for each failure to file due to intentional disregard is increased to $250/return with no maximum amount.  This minimum penalty can be imposed in addition to the above penalty schedule, and is not affected by reductions for corrections within 30 days or by August 1.

A business with average annual gross receipts for the three most recent tax years of $5 million or less is subject to the small business penalty.

Below are the links to the IRS website for both the General Instructions for Certain Information Returns (which includes 1099s), as well as the 2011 Instructions for the 1099-MISC.

If you have any questions regarding your filing requirements or whether you need to issue 1099s for 2011, please contact your tax professional as soon as possible at 281.759.1120.