YEAR END REPORTING

Information Returns

One of the most commonly filed information returns is Form 1099-MISC, Statement for Recipients of Miscellaneous Income. Nonemployee compensation, reported on Form 1099-MISC, includes fees, commissions, prizes and awards for services rendered, or other forms of compensation for services rendered for your trade or business by an individual who is not your employee. This form is not to be used to report amounts paid to employees, such as wages, employee business expense reimbursement, travel or auto allowance or Christmas bonuses. These items, to the extent they are reportable, must be reported on Form W-2.

A payment is generally reportable as nonemployee compensation if the following four conditions are met:

1. You made the payment to someone who is not your employee.
2. You made the payment for services received in the course of your trade or business (including government agencies and nonprofit organizations).
3. You made the payment to an individual, partnership, LLC, estate, trust, or in some cases, a corporation.
4. You made payments of at least $600 to the payee during the calendar year.

The exemption for reporting payments to corporations does not apply to payments for legal services. Attorneys’ fees of $600 or more, paid in the course of your trade or business, are reportable in Box 7 (certain payments to attorneys are reported in Box 14 – for example, paying a claimant’s attorney to settle a Company claim).

Rent, royalties, prizes and awards and fishing boat proceeds must be reported on Form 1099-MISC. Also, medical and health care payments, made directly to health care providers, must be reported on Form 1099-MISC, whether or not the payer is incorporated. However, payments made under a flexible spending arrangement, or a health reimbursement arrangement which is treated as employer-provided coverage under an accident or health plan, are exempt from the reporting requirements.

There are other information reporting forms used for other specific purposes. For example, interest payments to non-corporate payees are reported on Form 1099-INT.

We strongly suggest you carefully review your payments made during the year to ensure that you are properly filing information returns. Penalties for failure to file necessary information returns for payments made during 2011 have increased and now range from at least $30 to $100 per information return, depending on the situation. Also, penalties may be imposed for late filing of Form 1099 or filings with incorrect or missing Taxpayer Identification Numbers (TIN). The maximum penalty per taxpayer for failure to file information returns is $1.5 million. The minimum penalty for intentional disregard for this requirement is $250 per return with no maximum penalty. It is important that you obtain a correct TIN from each payee as soon as it becomes apparent that a Form 1099 will be required. Form W-9, Request for Taxpayer Identification Number and Certification, may be used for this purpose or Form W-8 series is used to request a foreign person’s TIN.

You are required to include a telephone number of a person to contact in the address section of Form 1099. This number must provide direct access to an individual who can answer questions about the statement.

The due date for furnishing 2011 statements to recipients is January 31, 2012. Statements must be filed with the IRS by February 28, 2012 (April 2, if filing electronically). If you are required to file 250 or more information returns, you must file electronically with the IRS. Several states also require electronic filing so be sure to check your individual state requirements as the threshold for electronic filing may be lower than 250.