Failure to issue 1099s: What You Don’t Know Can Cost You
Over the course of a year, a corporation makes many payments – rent to the real estate limited liability company that owns your office space, professional fees to your attorneys and accountants, payments to the estate of an employee who passed away, service fees to subcontractors who operate as sole proprietorships, and many others.
Under the IRS requirements beginning in the 2011 tax year, if a corporation paid any one of the above more than $600 in a year, that corporation has an obligation to issue a 1099 for the payments. The rules state that a 1099 form must be sent to any eligible recipient who was paid at least $600 during the tax year. Eligible recipients include limited liability companies (“LLCs”), partnerships, estates, trusts and, only for payments for medical, health care, legal or fishing activities, corporations.
The 1099s must be provided to the eligible recipient by January 31st . There are financial penalties related to failure to file and such penalties are assessed per 1099 not issued, so these penalties can accumulate quickly. The penalties are on an escalating scale, from $30 to $100 per 1099 not issued, depending upon when or if you do issue one.
We recommend that you contact your tax advisor to discuss how this impacts your corporation or, if you are not currently working with a tax advisor, contact us for a referral to one.
For questions about your tax filing obligations, or any other business questions, contact one of the Massachusetts business attorneys at the Franklin,Massachusetts law firm of Doherty, Ciechanowski, Dugan & Cannon, P.C.