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.

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