Do I have to request Form W-9 from a corporation?

Summary

The Internal Revenue Code (IRC) states that payments to corporations generally do not have to be reported on an information return like Form 1099-MISC.   See Are payments to corporations reportable on a 1099-MISC form? for a discussion of exceptions.  The IRC goes on to state that you may treat a corporation as an exempt recipient (generally exempt from information reporting or receiving Form 1099-MISC) if one of the following indicators is met to identify the entity as a corporation.

  1. A Form W-9 is received which includes an EIN and a statement from the payee that it is a domestic corporation.
  2. You have on file a domestic corporate resolution or similar document clearly indicating corporate status.
  3. The name of the corporation contains an unambiguous expression of corporate status that is Incorporated, Inc., Corporation, Corp., P.C., (but not Company or Co.) or contains the term insurance company, indemnity company, reinsurance company, or assurance company.

There are two ways in practice that accounting departments comply with these indicators so they are not required to obtain Form W-9.  The first step is to look for Inc. or similar terminology on a company’s website, invoice, contract or other document.  The second step is to go to the Secretary of State’s website, complete a business search for the company name and download the Certificate of Incorporation for companies that are a corporation.  If you can determine that an entity is a corporation from one of these two indicators and has no reportable payments (for example, medical or attorney payments) you do not have to request Form W-9.   Please note that foreign corporations are outside the scope of this discussion.

The Long Answer

Internal Revenue Code section 1.6041-3 details payments for which no return of information is required under section 6041.  Paragraph (p)(1) of this section states that an information return is not required for payments made to “a corporation described in section 1.6049-4(c)(1)(ii).”  See Are payments to corporations reportable on a 1099-MISC form? for a discussion of exceptions.

Section 1.6049-4(c)(1)(ii)(A) listed below states that a payer may treat a corporation as an exempt recipient (who is generally exempt from information reporting) based on a properly completed Form W-9 or one of the indicators described in paragraph (c)(1)(ii)(A).

There are two ways in practice that accounting departments comply with these indicators so they are not required to obtain Form W-9.  The first step is to look for Inc. or similar terminology on a company’s website, invoice, contract or other document.  The second step is to go to the Secretary of State’s website, complete a business search for the company name and download the Certificate of Incorporation for companies that are a corporation.  If you can determine that an entity is a corporation from one of these two indicators and has no reportable payments (for example, medical or attorney payments) you do not have to request Form W-9.   Please note that foreign corporations are outside the scope of this discussion.

IRC Section 1.6049-4(c)(1)(ii)(A)

(ii) Exempt recipient defined. The term exempt recipient means any person described in paragraphs (c)(1)(ii)(A) through (Q) of this section. An exempt recipient is generally exempt from information reporting without filing a certificate claiming exempt status unless the provisions of this paragraph (c)(1)(ii) require a payee to file a certificate.

A payor may, in any case, require a payee that is a U.S. person not otherwise required to file a certificate under this paragraph (c)(1)(ii) to file a certificate in order to qualify as an exempt recipient. See § 31.3406(h)-3(a)(1)(iii) and (c)(2) of this chapter for the certificate that a payee that is a U.S. person must provide when a payor requires the certificate to treat the payee as an exempt recipient under this paragraph (c)(1)(ii). A payor may treat a payee as an exempt recipient based upon a properly completed form as described in § 31.3406(h)-3(e)(2) of this chapter, its actual knowledge that the payee is a person described in this paragraph (c)(1)(ii), or the indicators described in this paragraph (c)(1)(ii).

(A) Corporation. A corporation, as defined in section 7701(a)(3), whether domestic or foreign, is an exempt recipient. In addition, for purposes of this paragraph (c)(1), the term corporation includes a partnership all of whose members are corporations described in this paragraph (c)(1), but only if the partnership files with the payor a certificate stating that each member of the partnership meets one of the requirements of paragraph (c)(1)(ii)(A) (1) through (4) of this section. Absent actual knowledge otherwise, a payor may treat a payee as a corporation (and, therefore, as an exempt recipient) if one of the requirements of paragraph (c)(1)(ii)(A) (1), (2), (3), or (4), of this section are met before a payment is made.

(1) The name of the payee contains an unambiguous expression of corporate status that is Incorporated, Inc., Corporation, Corp., P.C., (but not Company or Co.) or contains the term insurance company, indemnity company, reinsurance company, or assurance company, or its name indicates that it is an entity listed as a per se corporation under § 301.7701-2(b)(8)(i) of this chapter.

(2) The payor has on file a corporate resolution or similar document clearly indicating corporate status. For this purpose, a similar document includes a copy of Form 8832, filed by the entity to elect classification as an association under § 301.7701-3(b) of this chapter.

(3) The payor receives a Form W-9 which includes an EIN and a statement from the payee that it is a domestic corporation.

(4) The payor receives a withholding certificate described in § 1.1441-1(e)(2)(i), that includes a certification that the person whose name is on the certificate is a foreign corporation.

Disclaimer – Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.

Are payments to corporations reportable on a 1099-MISC form?

The Short Answer

Most payments to corporations are NOT required to be reported on Form 1099-MISC. Corporations include both S and C corporations as well as limited liability companies (LLCs) that have elected to be taxed as a C or S corporation with the IRS. (This tax classification will be noted on the W-9)  However, as with most of the tax code, there are several significant exceptions to this rule.  The most significant of these exceptions are medical and healthcare payments, attorneys’ fees, and gross proceeds paid to an attorney.

Medical and healthcare payments – Payments of $600 or more made in the course of your trade or business to each physician or other supplier or provider of medical or health care services that is a corporation is reportable in box 6 of Form 1099-MISC.

Attorneys’ fees – The term “attorney” includes a law firm or other provider of legal services.  Attorneys’ fees of $600 or more paid in the course of your trade or business to a corporation are reportable in box 7 of Form 1099-MISC.

Gross proceeds paid to an attorney – A settlement agreement is an example of gross proceeds that would be reportable in box 14 under section 6045(f) when paid to a corporation.

 

The Long Answer

The Instructions for Form 1099-MISC lists the following types of payments that are reportable if paid to a corporation and exceed a minimum dollar amount.

Payments reportable to corporations

  • Medical and health care payments of $600 or more (reported in box 6)
  • Attorneys’ fees of $600 or more (reported in box 7)
  • Gross proceeds paid to an attorney of $600 or more (reported in box 14)
  • Fish purchases for cash of $600 or more (reported in box 7)
  • Substitute payments in lieu of dividends or tax-exempt interest of $10 or more (reported in box 8)
  • For federal executive agencies: Payments made by a federal executive agency to a corporation for services (reported in box 7)

An often asked question is whether the term corporation used in the IRS regulations includes C corporations, S corporations, and LLCs.   The term corporation includes both S corporations and C corporations.  An LLC is not a corporation as it is a limited liability “company”.  However, LLCs that have elected to be treated as an S corporation by filing Form 2253 with the IRS or treated as a C corporation by filing Form 8832 are considered a corporation for 1099 purposes.  LLCs that make one of these elections would write C or S on the limited liability line on Form W-9.

Let’s look a couple of these exceptions where payments to corporations are reportable.

Medical and health care payments

Medical and health care payments include payments of $600 or more made in the course of your trade or business to each physician or other supplier or provider of medical or health care services. Include payments made by medical and health care insurers under health, accident, and sickness insurance programs.  If payment is made to a corporation, list the corporation as the recipient rather than the individual providing the services.  Payments to persons providing health care services often include charges for injections, drugs, dentures, and similar items. In these cases, the entire payment is subject to information reporting.

You are not required to report payments to pharmacies for prescription drugs.  You are also not required to report payments made to a tax-exempt hospital or extended care facility or to a hospital or extended care facility owned and operated by the United States (or its possessions), a state, the District of Columbia, or any of their political subdivisions, agencies, or instrumentalities.

Attorneys’ fees

The term attorney includes a law firm or other provider of legal services. Attorneys’ fees of $600 or more paid in the course of your trade or business are reportable in box 7 of Form 1099-MISC.   Fees paid here include the typical professional fees paid for legal services that were performed directly for you.  Do not include gross proceeds paid in connection with settlement agreements reported in box 14.

Gross proceeds paid to an attorney

Gross proceeds paid to attorneys are typically amounts paid to settle a lawsuit.  Fees paid to an attorney for performing services directly for you are reported in box 7.

Under section 6045(f), report in box 14 payments that:

  • Are made to an attorney in the course of your trade or business in connection with legal services, for example, as in a settlement agreement,
  • Total $600 or more, and
  • Are not reportable by you in box 7.

Generally, you are not required to report the claimant’s attorney’s fees. For example, an insurance company pays a claimant’s attorney $100,000 to settle a claim. The insurance company reports the payment as gross proceeds of $100,000 in box 14. The insurance company does not have a reporting requirement for the claimant’s attorney’s fees subsequently paid from these funds.

These rules apply whether or not the legal services are provided to the payer and whether or not the attorney is the exclusive payee (for example, the attorney’s and claimant’s names are on one check) or other information returns are required for some or all of a payment under section 6041A(a)(1). For example, a person who, in the course of a trade or business, pays $600 of taxable damages to a claimant by paying that amount to a claimant’s attorney is required to furnish Form 1099-MISC to the claimant under section 6041 and furnish Form 1099-MISC to the claimant’s attorney under section 6045(f). For more examples and exceptions relating to payments to attorneys, see Regulations section 1.6045-5.

Other payments reportable to corporations

  • For brokers or barter exchanges: Barter exchange transactions (reported on Form 1099-B)
  • Cancellation of debt in excess of $600 owed to you by a corporation (reported on Form 1099-C)
  • Money lending businesses: Acquisition or abandonment of secured property related to a corporation (reported on Form 1099-A)
  • Brokers: Any sale of a covered security acquired by an S corporation (other than a financial institution) after 2011 (reported on Form 1099-B)
  • Payment card or third-party network providers: Payments made in settlement of payment card (credit cards are included here) or third-party network transactions to corporations (reported on Form 1099-K)

It is important to note that payments made by credit card are not subject to reporting on Form 1099-MISC.  The payment settlement entities (your credit card processors) are responsible for reporting all credit card transactions on Form 1099-K.  So if you pay every bill by credit card you would not be required to file a 1099-MISC form.

Disclaimer – Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. In addition, this article is not a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.