1099 Reporting for Payments to Attorneys, Law Firms, Other Legal Service Providers, and for Legal Settlements

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1 1. How to report and record transactions for legal services provided by an attorney (non-employee of the City), law firm, or other provider of legal services including a corporation proving legal services per section 6045(f) 1

2 2. How to report and record transactions for gross proceeds of legal settlements if the check is payable to an attorney, law firm, or other provider of legal services including a corporation proving legal services per section 6045(f). (If the settlement is taxable (non-wage) income to the claimant, a second 1099-Misc (box 3) must be issued to the claimant.) Gross proceeds paid to an attorney, law firm or other provider of legal services including corporations providing legal services Reportable in Box 14 of the 1099-Misc (payments aggregating $600 or more during a calendar year) Prior to payment, obtain attorney's taxpayer identification number (TIN) & the name associated with it by the IRS IBIS name = Attorney's name associated with TIN by the IRS, Vendor name = Attorney & claimant's name IBIS = "MA" SAP = "FE 14" "FE" Misc & "14" - box 14 28% back up withholding required if no TIN or an incorrect TIN provided prior to payment SAP - Vendor name 1 = Attorney's name associated with TIN by the IRS The TIN provided needs to be for the attorney or firm named on the check. (If TIN for law firm is provided then law firm's name needs to be on the check) SAP - Vendor name 2 = Claimant's name and/or rest of a long attorney's name IBIS or SAP - Don't shorten names, no nicknames, allowable punctuation = a dash "-", a space " ", or an "&" 2

3 3. How to report and record transactions for gross proceeds of legal settlements if the check is payable to the claimant and the payment is for a taxable non-wage claim per section 6045(f) Settlement paid to claimant for taxable, nonwage claim (punitive damages, emotional distress, lost profits, defamation, & employment discrimination, etc.) Reportable in Box 3 of the 1099-Misc (Payments aggregating $600 or more during a calendar year) Prior to payment, obtain claimant's taxpayer identification number (TIN) & the name associated with it by the IRS IBIS - Vendor name and/or 1099 name = Name associated with TIN by the IRS IBIS = "M3" SAP = "FE 03" "FE" Misc & "03" - box 3 28% back up withholding required if no TIN or an incorrect TIN provided prior to payment SAP - Vendor name 1 = Name associated with TIN by the IRS SAP - For long vendor names you can also use Vendor name 2 IBIS or SAP - Don't shorten names, no nicknames, allowable punctuation = a dash "-", a space " ", or an "&" 3

4 4. How to report and record transactions so that a 1099-Misc will be issued to the claimant for gross proceeds of legal settlements when the check is payable to an attorney or a third party and the payment is for a taxable non-wage claim per section 6045(f) 4

5 5. For settlements, the type of information return (1099-Misc, 1099-Int, Form W-2, etc.) required depends on to whom the settlement check is payable, to whom the check is delivered, for what the settlement is for, and if it is taxable income to the claimant. 5

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7 Discussion Issues: 1. In SAP, vendor name 1 (the first name printed on the check) has to be the name of the individual or firm that will receive the 1099-Misc, usually the attorney or law firm. The claimant s name can be on vendor name 2. This is necessary because there is no 1099 name field in SAP a. At this time, checks are typically paid as follows: Claimant name and his/her attorney, attorney name b. In SAP this needs to be reversed as follows: Attorney or law firm name and claimant, claimant name i. Does this affect the wording used in city ordinances or court judgments? ii. Does the Payments/Settlements/Recoveries/Judgments form need any revisions? iii. Are there other issues with making this change? 2. Currently, checks often name an individual attorney but the attorney is providing the TIN for his/her law firm. In IBIS, the 1099 name had to be changed to the firm s name. This is not necessarily in compliance with the reporting requirements (IRS section 6045(f)) a. According to the requirement, the TIN provided should be that of the attorney or law firm named on the check i. If the law firm s TIN is to be used, then vendor name 1 and the check should use the law firm s name instead of the attorney s name ii. If the attorney s name is to be used then the attorney needs to provide his/her TIN 1. If the attorney provides the law firm s TIN, this is an incorrect TIN and 28% withholding is required b. Is there any reason not to use the law firm s name? 3. Vendor names acceptable to and identifiable by the IRS for 1099s a. Typically, the vendor name can t use a nickname or abbreviation unless that is how it was registered with the IRS i. Robert Smith instead of Bob Smith ii. Northwest Legal Services instead of NW Legal Services b. The vendor name should not be an assumed business name (ABN). In SAP, an ABN can be entered in vendor name 2 i. Gatti & Gatti Law Firm PC instead of it s ABN, Gatti Gatti Maier Sayer Thayer & Associates c. The only punctuation allowed are dashes, -, spaces,, and the &. No commas, periods, etc. 4. Quick checks have been used for advances on settlement payments and possibly for settlement payments. These payments are not traceable, in IBIS, to the vendor (claimant or attorney). I don t know about SAP. To prepare 1099s, the Accounting Division will need a list of Quick Checks used for reportable payments including the check amount, name, TIN, mailing address, type of payment, etc. 7