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What are gross proceeds and are they reportable on a 1099-MISC form?

Gross proceeds are payments that:

  • Are made to an attorney in the course of your trade or business in connection with legal services, but not for the attorney’s 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. However, 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,
  • 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 another section of the Code, such as section 6041.

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, reporting damages pursuant to section 6041, generally in box 3, and
  • Furnish Form 1099-MISC to the claimant’s attorney, reporting gross proceeds paid pursuant to section 6045(f), in box 14.

For more examples and exceptions relating to payments to attorneys, see Regulations section 1.6045-5

For additional information see the 2019 Instructions for Form 1099-MISC