@188 CHAP 4 旼컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴� � 1099s AND OTHER TAX INFORMATION RETURNS � 읕컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴� @Q "No man's life, liberty, or property are safe @Q when the legislature is in session." @Q -- Gideon J. Tucker, 1860 As a general rule, every person engaged in a trade or busi- ness must report to the IRS any payments of $600 or more made to any person during the calendar year, for items such as rent, compensation for services, commissions, and annui- ties, plus other items of "fixed or determinable" income, or to report interest, dividend, or royalty payments of $10 or more. In addition, recent legislation by Congress has added a number of additional new tax reporting requirements you need to be aware of (since there are also stiff new pen- alties for failure to comply). The IRS has been given ad- ditional staffing and ordered to vigorously enforce the reporting rules. In addition to computerized document- matching programs at IRS Service Centers, field revenue agents are now routinely checking on information return compliance as part of their tax audits. Failure to properly issue (to recipients) and file informa- tion returns may result in serious penalties. In most cases, the penalty is up to $50 for each failure to file a timely information return (including failure to file on magnetic media where required or to file returns that are machine-readable). A reduced penalty of $15 applies to re- turns filed late, but within 30 days of the due date, or a reduced penalty of $30 applies if over 30 days late but filed by August 1 of the year in which due. Also, each failure to furnish the recipient a copy of the statement on time can result in a further $50 penalty. Some of the more common information return filing require- ments for a typical small or medium-sized business are summarized below: _____________________________________________________________ FORM NUMBER AND WHAT IS DUE DATES: TYPE OF TRANSACTIONS REPORTED? TO RECI- TO IRS REPORTED (THRESHOLD AMT.) PIENT __________________________ ______________ _______ _______ FORM 1098 -- Statement of $600 or more Jan. 31 Feb. 28 mortgage interest for in- (To payor) terest received by a trade or business from individuals 컴컴컴컴컴컴컴컴컴컴컴컴컴 컴컴컴컴컴컴컴 컴컴컴� 컴컴컴� FORM 1099-B -- Statement Any amount Jan. 31 Feb. 28 for recipients of proceeds from real estate, broker and barter exchange trans- actions 컴컴컴컴컴컴컴컴컴컴컴컴컴 컴컴컴컴컴컴컴 컴컴컴� 컴컴컴� FORM 1099-DIV -- Statement $10 or more Jan. 31 Feb. 28 for recipients of dividends ($600 in and distributions on stock. the case of Also report liquidating liquidations) distributions and backup withholding 컴컴컴컴컴컴컴컴컴컴컴컴컴 컴컴컴컴컴컴컴 컴컴컴� 컴컴컴� FORM 1099-INT -- Statement $10 or more Jan. 31 Feb. 28 for recipients of interest income (and backup with- holding) 컴컴컴컴컴컴컴컴컴컴컴컴컴 컴컴컴컴컴컴컴 컴컴컴� 컴컴컴� FORM 1099-MISC -- State- $600 or more Jan. 31 Feb. 28 ment for recipients of ($10 for royal- miscellaneous income, in- ties, or $5,000 cluding payments of rent, received from prizes &awards, gross roy- direct seller) alty payments, non-employee compensation. Also used to report sales to direct sellers of consumer items (Amway, etc.) 컴컴컴컴컴컴컴컴컴컴컴컴컴 컴컴컴컴컴컴컴 컴컴컴� 컴컴컴� FORM 1099-OID -- Statement $10 or more Jan. 31 Feb. 28 for recipients of original issue discount 컴컴컴컴컴컴컴컴컴컴컴컴컴 컴컴컴컴컴컴컴 컴컴컴� 컴컴컴� FORM 1099-R -- Statement Any amount Jan. 31 Feb. 28 for recipients of total distributions from re- tirement plans, IRAs, insurance contracts or the like 컴컴컴컴컴컴컴컴컴컴컴컴컴 컴컴컴컴컴컴컴 컴컴컴� 컴컴컴� FORM 1099-S -- Statement Any amount Jan. 31 Feb. 28 for recipients of proceeds from real estate trans- actions 컴컴컴컴컴컴컴컴컴컴컴컴컴 컴컴컴컴컴컴컴 컴컴컴� 컴컴컴� FORM 8027 -- Employers' (Perform calcu- Jan. 31 Feb. 28 annual information return lations on (On Form of tip income and alloca- the form) W-2) ted tips for tips repor- ted by employees and al- located tips from a food/ beverage establishment 컴컴컴컴컴컴컴컴컴컴컴컴컴 컴컴컴컴컴컴컴 컴컴컴� 컴컴컴� FORM 8300 -- Report of Over $10,000 Jan. 31 15 days cash payments that are re- after ceived by a trade a busi- trans- ness (including multiple action related transactions) 컴컴컴컴컴컴컴컴컴컴컴컴컴 컴컴컴컴컴컴컴 컴컴컴컴 컴컴컴� FORM 8308 -- Report of a All sales or Jan. 31 Attach sale or exchange of an in- exchanges of (To both to Form terest in a partnership, partnership the trans- 1065 involving certain unreal- interests feror and ized receivables or sub- transferee) stantially appreciated inventory assets 컴컴컴컴컴컴컴컴컴컴컴컴컴 컴컴컴컴컴컴컴 컴컴컴� 컴컴컴� FORM W-2 -- Wage and tax Any amount Jan. 31 Feb. 28 statement for wages, tips and other compensation paid to employees, and income and FICA taxes withheld 컴컴컴컴컴컴컴컴컴컴컴컴컴 컴컴컴컴컴컴컴 컴컴컴� 컴컴컴� FORM W-2P -- Statement for Any amount Jan. 31 Feb. 28 recipients of annuities, pension and other retire- ment payments, except for total distributions ____________________________________________________________ The 1099 series of information returns must generally be filed together with a transmittal form, Form 1096. OBTAINING SOCIAL SECURITY NUMBERS. Recently enacted laws make it necessary for a business to obtain the name and Social Security number or other tax identification number of anyone to whom you make payments that you must report. There is a $50 penalty for failure to obtain their tax iden- tification number, unless you have a reasonable excuse (such as their refusing to give you their number). If they refuse to give you their number, YOU MUST WITHHOLD 20% OF WHATEVER AMOUNT YOU OWE THEM, AND DEPOSIT IT WITH THE IRS, OR YOU WILL BE SUBJECT TO A PENALTY FOR FAILURE TO WITHHOLD. Use Form W-9 to request a tax I.D. number from a recipient. Fortunately, there are a number of exemptions from the various 1099 filing requirements listed above, which will eliminate many of the people or companies to whom you are likely to make payments of $600 (or other threshold amount) or more. You don't have to report the following payments: . To corporations (except certain corporations in the medical field); . Compensation to employees that is already reported on their W-2s; . Bills for merchandise, telegrams, telephone, freight, storage, and similar charges; . Rent payments made to real estate agents; . Expense advances or reimbursements to employees that the employees must account to you (the employ- er) for; or . To a governmental unit. MAGNETIC MEDIA FILING REQUIREMENTS. Note that the IRS per- mits you to file 1098 and 1099 forms (as well as certain other information returns) on "magnetic media" (computer tapes, etc.) rather than the actual paper forms, if certain very specific formats for the computer tape or disk are met. The IRS REQUIRES that certain information returns be filed on magnetic media, if your business files 250 or more such returns for a calendar year. These include Form 1098, all of the 1099 series and W-2 series of information re- turns, and various others such as Forms 5498 and 8027. A "hardship waiver" to excuse you from having to file in magnetic media format may be granted if you file a request on Form 8508 at least 90 days in advance of the due date, under certain circumstances. Failure of a taxpayer to file an information return on mag- netic media (or on a machine-readable form where magnetic media filing is not required) when required to do so is treated as a FAILURE TO FILE and can result in the imposi- tion of applicable penalties for failure to file, as noted above. @CODE: CA California has a whole body of tax information reporting requirements practically identical to those for the IRS Form 1099 series of information returns. Until recently, California had its own series of information returns (Form 599 series). However, those forms were discontinued in 1987, and taxpayers may now file copies of federal 1099 forms with the state instead. Form 596 is still used to transmit these information return forms, rather than fe- deral Form 1096. Be aware that California also has mag- netic media filing requirements similar to those of the federal law. Effective as of 1991, trades and businesses in California receiving cash payments in excess of $10,000 are required to file a copy of the IRS information return, Form 8300, with the state Franchise Tax Board. (Note that, under both federal and California law, "cash" now includes most kinds of monetary instruments, including checks other than personal checks. A copy of the federal Form 8300 must be filed with the FTB within 15 days after the reportable transaction occurs. @CODE:OF @CODE: LS @STATE requires all citizens to inform on each other, by filing information returns. Violators are deported to Cuba. @CODE:OF @CODE: HI Hawaii also requires businesses to file information returns (Form N-199 series). The rules are generally identical to the federal Form 1099 series filing requirements. A sum- mary and transmittal of Forms N-199 for the preceding cal- endar year must be filed by the last day of February, with Form N-196 (similar to federal Form 1096). @CODE:EN In addition to the requirement that you file 1099s with the IRS, you may have to file similar state forms or copies of the federal 1099 forms with state taxing authorities.