Due Dates (General Rules)

Report
Form 1099 – Overview
Robert J. Kiggins
September 27, 2011
What We Will Cover
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IRS Information Reporting Procedures
Purposes of Form 1099 Reporting
Due Dates for Form 1099 Series
Penalties for Noncompliance
Consequences of Errors with Inaccurate Names
and TINS
IRS Information Reporting
Procedures
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What is an Information Return?
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An information return is a tax document businesses are required
to file to report certain business transactions to the Internal
Revenue Service (IRS).
The requirement to file Information Returns is mandated by the
Internal Revenue Service and associated regulations.
Who must file Information Returns?
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Any person, including a corporation, partnership, individual,
estate, and trust.
Who make reportable transactions during the calendar year
Must file information returns to report those transactions to the
IRS.
IRS Information Reporting
Procedures (Cont’d)
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Persons required to file Information Returns to
the IRS must also furnish statements to the
recipients (Payees) of the income.
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In fact the order is
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First furnish statements to the recipients.
Second file the information reports to the IRS
Filers who have 250 or more returns must file
these returns with the IRS electronically.
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More on electronic filing this PM after lunch
Purposes of Form 1099
Reporting

IRS Form 1099 has many purposes for
reporting income and there is more than
one Form 1099.
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1099-A is used to report all amounts owed
which are the result of the recovery or
abandonment of property that is security for a
debt for which you are the creditor.
1099-B is used to report all amounts from
brokerage and barter exchange transactions.
Purposes of Form 1099
Reporting – Cont’d
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1099-DIV is used to report all dividends and capital
gains of $10.00 or more.
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1099-G is used for government payments.
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$10.00 or more for unemployment compensation
and state and local income tax refunds.
 $600.00 or more for taxable grants and discharge
of indebtedness in bankruptcy.
1099-INT is used for reporting all interest income in
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excess of $10.00.
Purposes of Form 1099
Reporting – Cont’d
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1099-MISC is used to report miscellaneous
income.
 Royalty payments exceeding $10.00.
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Rent, prizes or awards in excess of $600.00.
Payments to any non-employee of a business, i.e. contract labor,
subcontractors, directors in excess of $600.00.
"Golden Parachute" payments made in excess of $600.00
1099-R is used to report all amounts paid from
retirement, profit sharing, IRAs, SEPs or
401(K) and 403(C) programs.
1099-S is used to report all gross receipts from
the sale or exchange of real estate
Due Dates (General Rules)
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As a General Rule, Form 1099’s must Be
Sent to the Payees by January 31
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Consult Handout Materials for Specifics
Manually Filed Form 1099’s Must be Sent
to the IRS by February 28
Electronically Filed Form 1099’s Must be
Transmitted to the IRS by March 31
Penalties - Failure To Furnish Correct Payee
Statements (Section 6722)
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If you fail to provide correct payee statements
and you cannot show reasonable cause, you
may be subject to a penalty.
The penalty applies if
 you fail to provide the statement by January
31 (February 15 for Forms 1099-B, 1099-S,
and 1099-MISC (boxes 8 and 14 only)),
Penalties - Failure To Furnish Correct
Payee Statements (Section 6722) you fail to include all information required to be shown on the
statement, or
 you include incorrect information on the statement.
 "Payee statement" has the same meaning as "statement to
recipient”
The amount of the penalty is based on when you furnish the correct
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payee statement.
Penalties - Failure To Furnish Correct Payee
Statements (Section 6722)
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It is a separate penalty, and is applied in the
same manner as the penalty for failure to file
correct information returns by the due date
(Section 6721), which we will describe next.
Penalties - Failure To Furnish Correct Payee
Statements (Section 6722)
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Exception. An inconsequential error or omission is not considered a
failure to include correct information.
An inconsequential error or omission cannot reasonably be expected
to prevent or hinder the payee from timely receiving correct
information and reporting it on his or her income tax return or from
otherwise putting the statement to its intended use.
Penalties - Failure To Furnish Correct Payee
Statements (Section 6722)
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Errors and omissions that are never
inconsequential are those relating to
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a dollar amount,
a significant item in a payee's address,
the appropriate form for the information provided
(that is, whether the form is an acceptable substitute
for the official IRS form), and
whether the statement was furnished in person or by
"statement mailing," when required.
Penalties - Failure To Furnish Correct
Payee Statements (Section 6722)
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Intentional disregard of payee
statement requirements. If any failure
to provide a correct payee statement is
due to intentional disregard of the
requirements to furnish a correct payee
statement, the penalty is at least $250
(old minimum was $100) per payee
statement with no maximum penalty.
Penalties - Failure To File Correct Information
Returns with the IRS by the Due Date (Section
6721)
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If you fail to file a correct information
return with the IRS by the due date and
you cannot show reasonable cause, you
may be subject to a penalty.
The penalty applies if
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you fail to file timely,
you fail to include all information required to be
shown on a return,
or you include incorrect information on a return.
Penalties - Failure To File Correct
Information Returns with the IRS by the
Due Date (Section 6721) – Cont’d
 The penalty also applies if
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you file on paper when you were required to
file electronically,
you report an incorrect TIN or fail to report a
TIN, or
you fail to file paper forms that are machine
readable.
The amount of the penalty is based on
when you file the correct information
return.
Penalties - Failure To File Correct Information
Returns with the IRS by the Due Date (Section
6721) - Cont’d
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The penalty is:
 $30 (was $15 before Small Business Jobs Act of 2010) per
information return if you correctly file within 30 days (by March
30 if the due date is February 28);
 maximum penalty $250,000 per year
 ($75,000 for small businesses, defined below).
 $60 (was $30) per information return if you correctly file more
than 30 days after the due date but by August 1;
 maximum penalty $500,000 per year
 ($200,000 for small businesses).
Penalties - Failure To File Correct Information
Returns with IRS by the Due Date (Section
6721) - Cont’d
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$100 (was $50) per information return if you file after
August 1 or you do not file required information
returns;
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maximum penalty $1,500,000 per year
($500,000 for small businesses).
Small businesses—lower maximum penalties. You
are a small business if your average annual gross
receipts for the 3 most recent tax years (or for the
period you were in existence, if shorter) ending before
the calendar year in which the information returns were
due are $5 million or less.
Remember – this same penalty scheme applies to a
failure to report to a payee
Reasonable Cause
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Penalties Don’t Apply where Reasonable Cause under Treas. Reg. § 301.6724-1
Can Be Shown:
Significant mitigating factors + Filer Acting in a Responsible Manner = Reasonable
Cause
Significant Mitigation Factors
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(1) The fact that prior to the failure the filer was never required to file the particular type of
return or furnish the particular type of statement with respect to which the failure occurred,
or
(2) The fact that the filer has an established history of complying with the information
reporting requirement with respect to which the failure occurred. In determining whether the
filer has such an established history, significant consideration is given to—
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(i) Whether the filer has incurred any penalty under in prior years for the failure (or under parallel provisions of prior law),
and
(ii) If the filer has incurred any such penalty in prior years, the extent of the filer's success in lessening its error rate from
year to year.
A filer may treat as a penalty not incurred any penalty that was self-assessed under section 6724(c)(3) and any penalty
under section 6676(b) that was self-assessed under section 6676(d), prior to amendment or repeal by the Omnibus
Budget Reconciliation Act of 1989.
Reasonable Cause
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Responsible manner— Acting in a responsible manner generally means—
(i) That the filer exercised reasonable care, which is that standard of care that a reasonably
prudent person would use under the circumstances in the course of its business in determining its
filing obligations and in handling account information such as account numbers and balances, and
(ii) That the filer undertook significant steps to avoid or mitigate the failure, including, where
applicable—
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(A) Requesting appropriate extensions of time to file, when practicable, in order to avoid the
failure,
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(B) Attempting to prevent an impediment or a failure, if it was foreseeable,
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(C) Acting to remove an impediment or the cause of a failure, once it occurred, and
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(D) Rectifying the failure as promptly as possible once the impediment was removed or the
failure was discovered.
Reasonable Cause
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Events beyond the filer's control. In order to establish reasonable cause under this
standard, the filer must be meet the Responsible manner test set forth above and
must show that the failure was due to events beyond the filer's control.
Events which are generally considered beyond the filer's control include but are not
limited to—
 (i) The unavailability of the relevant business records
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fire or other casualty that damages or impairs the filer's relevant business records or the filer's system
for processing and filing such record
regulatory change that has a direct impact upon data processing and that is made so close to the
time that the return or payee statement is required that, the change cannot be complied with
unavoidable absence (e.g., due to death or serious illness) of the person with the sole responsibility
for filing a return or furnishing a payee statement
(ii) An undue economic hardship relating to filing on magnetic media (as
described in paragraph (c)(3) of the Reg),
(iii) Certain actions of the Internal Revenue Service
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failure was due to the filer's reasonable reliance on erroneous written information from the Internal
Revenue Service.
Reasonable reliance means that the filer relied in good faith on the information.
The filer shall not be considered to have relied in good faith if the Internal Revenue Service was not
aware of all the facts when it provided the information to the filer.
In order to substantiate reasonable cause under this paragraph (c)(4), the filer must provide a copy
of the written information provided by the Internal Revenue Service and, if applicable, the filer's
written request for the information.
Reasonable Cause
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(iv) Certain actions of the filer’s agent
 The filer exercised reasonable business judgment in contracting with the agent
to file timely correct returns or furnish timely correct payee statements with
respect to which the failure occurred.
 This includes contracting with the agent and providing the proper
information sufficiently in advance of the due date of the return or
statement to permit timely filing of correct returns or timely furnishing of
correct payee statements; and
 The agent satisfied the reasonable cause criteria for mitigating circumstances or
one of the reasonable cause criteria
(v) Certain actions of the payee or any other person providing necessary information with respect
to the return or payee statement (as described in paragraph (c)(6) of the Reg).
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(i) That the failure resulted from the failure of the payee, or any other person required to
provide information necessary for the filer to comply with the information reporting
requirements (“any other person”), to provide information to the filer, or
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(ii) That the failure resulted from incorrect information provided by the payee (or any other
person) upon which information the filer relied in good faith.
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To substantiate reasonable cause the filer must provide documentary evidence upon request of the Internal Revenue
Service showing that the failure was attributable to the payee (or any other person).
There are special rules relating to the availability of a waiver where the filer's failure relates to a taxpayer identification
number (TIN), and the failure is attributable to actions of the payee described above
Form 1099 MISC
Robert J. Kiggins
Agenda
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What is 1099 –Misc Reporting
Type of Payments
Payments Not Required Reporting
Reporting Timeline
Accuracy of Vendor Information
Form 1099 MISC Line by Line
What is 1099-MISC and
What does it Mean?
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A 1099-Misc is a type of tax form.
It is used to report miscellaneous income
For vendors who have been paid a total
of $600 or more
In non-employee payments during a
calendar year.
What Type of Payments are
Reported on 1099-Misc?
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Legal Services
Rents
Prizes/Awards
Medical/Dental Services
Guest Speakers/Lectures
Performers
Child Care Providers
Other Services
Payments Not Required to Be
Reported on 1099-Misc
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Payments for merchandise, telegraphs,
telephone, freight, storage
Wages paid to employees (reported on W-2,
Wage and Tax Statement)
Payments Not Required to Report
on 1099-Misc
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Business travel allowances /mileage paid
to vendors
Payments to non profit organizations and
government agencies
Payments to Corporations
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Exceptions for medical and health care, and
legal – these must be reported
The Comprehensive 1099 Taxpayer Protection
and Replacement of Exchange Subsidy
Overpayments Act of 2011
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Repealed the requirement for rental property owners to
issue Form 1099-MISC;
Repealed the requirement for any business to issue Form
1099-MISC for payments of goods or property;
Repealed the requirement for any business to issue Form
1099-MISC for payments made to corporations;
1099-Misc Reporting Timeline
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IRS regulation mandates that the Form
1099-Misc is distributed no later than
January 31 of the year following payment.
Paper filing is due to IRS by February 28
Electronic file is due to the IRS by March
31.
Why is Accurate Reporting of
Vendor Information Critical?
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The Payor annually files to the IRS the
reportable amounts paid to each vendor
during the calendar year.
The legal name and Tax Identification
Number (TIN) in any preparation program
used MUST match exactly with the legal
name and TIN on file with the IRS.
What is the Role of the
Reporting Company?
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Verify that the vendor information is
accurate on the Form W-9 and matches
the IRS 147-C letter (letter confirming
EIN) OR matches a copy of the Social
Security Card.
• NOTE: Social Security Number (SSN) or
Employer Identification Number (EIN)
MUST always have a 9 digit number
What is the Role of the
Reporting Company?
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If a SSN is used, then the Individual/Sole
Proprietor box should be Checked on the
W-9 form or AP-1 (substitute W-9 form),
AND the legal name should be written in
the “Name” field and NOT in the
“Business name” field.
1099 Misc Line By Line
Account Number
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Required if you have multiple accounts for
a recipient for whom you are filing more
than one information report of the same
type
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E.G. A financial institution filing to a recipient
who has more than one account.
This Field won’t tend to come into play too
much on a 1099-Misc
1099 Misc Line By Line
2ND TIN not.
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You enter “X” in this box if you were
notified by the IRS twice within 2 calendar
years that the payee provided an incorrect
TIN.
If you mark this box the IRS won’t send
you any further incorrect TIN notices
regarding this account
1099 Misc Line By Line
Box 1. Rents
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Enter amounts of $600 or more for all
types of rents,
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such as real estate rentals paid for office
space (unless paid to a real estate agent)
machine rentals (for example, renting a
bulldozer to level your parking lot), and
pasture rentals (for example, farmers paying
for the use of grazing land).
1099 Misc Line By Line
Box 1 Rents – Cont’d
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If the machine rental is part of a contract that
includes both the use of the machine and the
operator, the rental should be prorated between
 the rent of the machine (reported in box 1)
and
 the operator's charge (reported as
nonemployee compensation in box 7).
Public housing agencies must report in box 1
rental assistance payments made to owners of
housing projects.
1099 Misc Line By Line
Box 2 Royalty Payments
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Enter gross royalty payments (or similar amounts) of
$10 or more.
Report royalties from oil, gas, or other mineral properties
before reduction for severance and other taxes that may
have been withheld and paid.
 Do not include surface royalties. They should be
reported in box 1.
 Do not report oil or gas payments for a working
interest in box 2
 report payments for working interests in box 7.
1099 Misc Line By Line
Box 2 Royalties – Cont’d
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Do not report timber royalties made under
a pay-as-cut contract; report these timber
royalties on Form 1099-S, Proceeds From
Real Estate Transactions.
Use box 2 to report royalty payments from
intangible property such as patents,
copyrights, trade names, and trademarks.
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Report the gross royalties (before reduction
for fees, commissions, or
1099 Misc Line By Line
Box 2 Royalty Payments
expenses) paid by a publisher directly to an
author or literary agent, unless the agent is a
corporation.
 The literary agent (whether or not a
corporation) that receives the royalty
payment on behalf of the author must report
the gross amount of royalty payments to the
author on Form 1099-MISC
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whether or not the publisher reported the
payment to the agent on its Form 1099-MISC
1099 Misc Line By Line
Box 3. Other Income
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Enter other income of $600 or more
required to be reported on Form 1099MISC that is not reportable in one of the
other boxes on the form.
PRIZES AND AWARDS
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Also enter in box 3 prizes and awards that
are not for services performed. Include
the fair market value (FMV) of
merchandise won on game shows.
1099 Misc Line By Line
Box 3. Other Income
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If, not later than 60 days after the winner
becomes entitled to the prize, the winner can
choose the option of
a lump sum or
 an annuity payable over at least 10 years,
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Then the payment of winnings is considered
made when actually paid.
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If the winner chooses an annuity, file Form 1099MISC each year to report the annuity paid during
that year.
1099 Misc Line By Line
Box 3. Other Income
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Do not include prizes and awards paid to
your employees.
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Report these on Form W-2.
Do not include in box 3 prizes and awards for
services performed by nonemployees, such as
an award for the top commission salesperson.
Report them in box 7.
1099 Misc Line By Line
Box 3. Other Income
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Prizes and awards received in recognition
of past accomplishments in religious,
charitable, scientific, artistic, educational,
literary, or civic fields are not reportable if:
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The winners are chosen without action on
their part,
The winners are not expected to perform
future services, and
The payer transfers the prize or award to a
charitable organization or governmental unit
under a designation made by the recipient.
1099 Misc Line By Line
Box 3. Other Income
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Other items required to be reported in box 3 include the
following.
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DAMAGES
Generally, all punitive damages, any damages for nonphysical
injuries or sickness, and any other taxable damages are reported
in Box 3.
 Report punitive damages even if they relate to physical
injury or physical sickness.
Generally, report all compensatory damages for nonphysical
injuries or sickness, such as employment discrimination or
defamation.
1099 Misc Line By Line
Box 3. Other Income
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However, do not report damages (other than
punitive damages):
Received on account of personal physical injuries
or physical sickness;
 That do not exceed the amount paid for medical
care for emotional distress;
 Received on account of nonphysical injuries (for
example, emotional distress) under a written
binding agreement, court decree, or mediation
award in effect on or issued by September 13,
1995; or
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1099 Misc Line By Line
Box 3. Other Income
That are for a replacement of capital, such as
damages paid to a buyer by a contractor who
failed to complete construction of a building.
Damages received on account of emotional distress,
including physical symptoms such as insomnia,
headaches, and stomach disorders, are not considered
received for a physical injury or physical sickness and
are reportable
 However, damages received on account of emotional
distress due to physical injuries
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1099 Misc Line By Line
Box 3. Other Income
or physical sickness are not reportable.
 Also report liquidated damages received
under the Age Discrimination in
Employment Act of 1967
 Taxable back pay damages may be wages
and reportable on Form W-2.
1099 Misc Line By Line
Box 3. Other Income
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Termination payments to former selfemployed insurance salespeople.
These payments are not subject to selfemployment tax and are reportable in box
3 (rather than box 7) if all the following
apply.
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The payments are received from an insurance
company because of services performed as an
insurance salesperson for the company.
1099 Misc Line By Line
Box 3. Other Income
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The amount of the payments does not
depend at all on length of service or overall
earnings from the company (regardless of
whether eligibility for payment depends on
length of service).
If the termination payments do not meet all
these requirements, report them in box 7.
1099 Misc Line By Line
Box 3. Other Income
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The payments are received after termination
of the salesperson's agreement to perform
services for the company.
The salesperson did not perform any services
for the company after termination and before
the end of the year.
The salesperson enters into a covenant not to
compete against the company for at least 1
year after the date of termination.
1099 Misc Line By Line
Box 4. Income Tax Withheld
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Enter backup withholding. For example, persons who
have not furnished their TIN to you are subject to
withholding at a 28% rate on payments required to be
reported in boxes 1, 2 (net of severance taxes), 3, 5 (to
the extent paid in cash), 6, 7 (except fish purchases for
cash), 8, 10, and 14.
Also enter any income tax withheld from payments to
members of Indian tribes from the net revenues of class
II or class III gaming activities conducted or licensed by
the tribes.
1099 Misc Line By Line
Box 5. Fishing Boat Proceeds
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Enter the individual's share of all proceeds from the sale of a catch or the
FMV of a distribution in kind to each crew member of fishing boats with
normally fewer than 10 crew members.
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A fishing boat has normally fewer than 10 crew members if the average size of the operating
crew was fewer than 10 on trips during the preceding 4 calendar quarters.
In addition, report cash payments of up to $100 per trip that are contingent
on a minimum catch and are paid solely for additional duties (such as mate,
engineer, or cook) for which additional cash payments are traditional in the
industry.
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However, do not report on Form 1099-MISC any wages reportable on Form W-2
1099 Misc Line By Line
Box 6. Medical and Health Care Payments
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Enter 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.
1099 Misc Line By Line
Box 6. Medical and Health Care Payments
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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.
The exemption from issuing Form 1099-MISC to a
corporation does not apply to payments for medical or
1099 Misc Line By Line
Box 6. Medical and Health Care Payments
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health care services provided by corporations, including professional
corporations.
However, you are 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.
1099 Misc Line By Line
Box 6. Medical and Health Care Payments
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Generally, payments made under
 a flexible spending arrangement (as defined in section
106(c)(2)) or
 a health reimbursement arrangement which is treated
as employer-provided coverage under an accident or
health plan for purposes of section 106
are exempt from the reporting requirements
1099 Misc Line By Line
Box 7. Nonemployee Compensation
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Enter nonemployee compensation of $600
or more.
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Include fees, commissions, prizes and awards for services
performed as a nonemployee,
Other forms of compensation for services performed for your
trade or business by an individual who is not your employee,
Fish purchases for cash.
Include oil and gas payments for a working interest, whether or
not services are performed.
Also include expenses incurred for the use of an entertainment
facility that you treat as compensation to a nonemployee.
1099 Misc Line By Line
Box 7. Nonemployee Compensation
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What is nonemployee compensation?
If the following four conditions are met, you
must generally report a payment as
nonemployee compensation.
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You made the payment to someone who is not your employee;
You made the payment for services in the course of your trade or business
(including government agencies and nonprofit organizations);
You made the payment to an individual, partnership, estate, or, in some cases, a
corporation; and
You made payments to the payee of at least $600 during the year
.
1099 Misc Line By Line
Box 7. Nonemployee Compensation
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Self-employment tax.
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Generally, amounts reportable in box 7 are
subject to self-employment tax.
If payments to individuals are not subject to
this tax and are not reportable elsewhere on
Form 1099-MISC, report the payments in box
3.
However, report section 530 (of the Revenue
Act of 1978) worker payments in box 7.
1099 Misc Line By Line
Box 7. Nonemployee Compensation
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Examples. The following are some examples of
payments to be reported in box 7.
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Professional service fees, such as fees to attorneys (including
corporations), accountants, architects, contractors, engineers, etc.
Fees paid by one professional to another, such as fee-splitting or
referral fees.
Payments by attorneys to witnesses or experts in legal adjudication.
Payment for services, including payment for parts or materials used to
perform the services if supplying the parts or materials was incidental to
providing the service. For example, report the total insurance company
payments to an auto repair shop under a repair contract showing an
amount for labor and another amount for parts, if furnishing parts was
incidental to repairing the auto.
1099 Misc Line By Line
Box 7. Nonemployee Compensation


Commissions paid to nonemployee
salespersons that are subject to repayment
but not repaid during the calendar year
A fee paid to a nonemployee, including an
independent contractor, or travel
reimbursement for which the nonemployee
did not account to the payer, if the fee and
reimbursement total at least $600. calendar
year
1099 Misc Line By Line
Box 7. Nonemployee Compensation



Payments to nonemployee entertainers for services.
Use Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, for
payments to nonresident aliens.
Exchanges of services between individuals in the course of their trades or businesses.

For example, an attorney represents a painter for nonpayment of business debts
in exchange for the painting of the attorney's law offices.


The amount reportable by each on Form 1099-MISC is the FMV of his or her own services performed.
However, if the attorney represents the painter in a divorce proceeding, this is
an activity that is unrelated to the painter's trade or business.
 The attorney must report on Form 1099-MISC the value of his or her
services.
 But the painter need not report on Form 1099-MISC the value of painting
the law offices because the work is in exchange for legal services that are
separate from the painters business.
1099 Misc Line By Line
Box 7. Nonemployee Compensation






Taxable fringe benefits for nonemployees.
Gross oil and gas payments for a working
interest.
Payments to an insurance salesperson who is
not your common law or statutory employee.
Directors' fees
Commissions paid to licensed lottery ticket
sales agents
Payments to section 530 (of the Revenue Act
of 1978) workers.
1099 Misc Line By Line
Box 7. Nonemployee Compensation

Nonqualified deferred compensation
(Section 409A) income.



Include in box 7 the amount of all deferrals (plus earnings)
reported in box 15b that are includible in gross income because
the nonqualified deferred compensation (NQDC) plan fails to
satisfy the requirements of section 409A.
The essential notion of 409A is to prevent unduly “pushing off”
the taxation of income to executives to try to better match tax
consequence to period when the income is earned.
These amounts generally are subject to self-employment tax
and are also subject to a substantial additional tax under section
409A that is reported on the nonemployee's Form 1040.
1099 Misc Line By Line
Box 7. Nonemployee Compensation

Golden parachute payments to Independent Contractors. A parachute
payment is any payment that meets all of the following conditions.
 The payment is in the nature of compensation.
 The payment is to, or for the benefit of, a disqualified individual.
 The payment is contingent on a change in the ownership of a corporation, the
effective control of a corporation, or the ownership of a substantial portion of the
assets of a corporation (a change in ownership or control).
 The payment has (together with other payments described in 1, 2, and 3, above,
made to the same individual) an aggregate present value of at least three times
the individual's base amount.
 A disqualified individual is one who at any time during the 12-month period prior
to and ending on the date of the change in ownership or control of the
corporation (the disqualified individual determination period) was an employee or
independent contractor and was, in regard to that corporation, a shareholder, an
officer, or a highly compensated individual.
 Golden Parachute Payments to Employees are Reported on Form W-2
1099 Misc Line By Line
Box 7. Nonemployee Compensation

Payments not reported in box 7. Do not
report in box 7, nor elsewhere on Form 1099MISC:



the cost of current life insurance protection (report on
Form W-2 or Form 1099-R);
an employee's wages, travel or auto allowance, or
bonuses (report on Form W-2);
or the cost of group-term life insurance paid on
behalf of a former employee (report on Form W-2).
1099 Misc Line By Line
Box 8. Substitute Payments in Lieu of
Dividends or Interest




Enter aggregate payments of at least $10 received by a broker for a
customer in lieu of dividends or tax-exempt interest as a result of a
loan of a customer's securities.
 For this purpose, a customer includes an individual, trust, estate,
partnership, association, company, or corporation.
 It does not include a tax-exempt organization, the United
States, any state, the District of Columbia, a U.S. possession, or
a foreign government.
File Form 1099-MISC with the IRS and furnish a copy to the
customer for whom you received the payment.
Also, file Form 1099-MISC for and furnish a copy to an individual for
whom you received a payment in lieu of tax-exempt interest.
Substitute payment means a payment in lieu of (a) a dividend or (b)
tax-exempt interest to the extent that interest (including 0ID) has
accrued while the securities were on loan.
1099 Misc Line By Line
Box 9. Payer Made Direct Sales of $5,000 or More



Enter an "X" in the checkbox for sales by you of $5,000
or more of consumer products to a person on a buy-sell,
deposit-commission, or other commission basis for resale
(by the buyer or any other person) anywhere other than
in a permanent retail establishment. Do not enter a
dollar amount in this box.
If you are reporting an amount in box 7, you may also
check box 9 on the same Form 1099-MISC.
The report you must give to the recipient for these direct
sales need not be made on the official form. It may be in
the form of a letter showing this information along with
commissions, prizes, awards, etc.
1099 Misc Line By Line
Box 10. Crop Insurance Proceeds

Enter crop insurance proceeds of $600 or
more paid to farmers by insurance
companies

unless the farmer has informed the insurance
company that expenses have been capitalized
under section 278, 263A, or 447.
1099 Misc Line By Line
Boxes 11 and 12. Reserved

Make no entries in these boxes
1099 Misc Line By Line
Box 13. Excess Golden Parachute Payments


Enter any excess golden parachute
payments.
An excess parachute payment is the
amount


of the excess of any parachute payment
over the base amount (the average annual
compensation for services includible in the
individual's gross income over the most recent
5 tax years)..
1099 Misc Line By Line
Box 14. Gross Proceeds Paid to an Attorney

Attorneys' fees of $600 or more paid in the course of
your trade or business are reportable in box 7 of Form
1099-MISC.
 The term attorney includes a law firm or other
provider of legal services.
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.

However, these rules do not apply to

1099 Misc Line By Line
Box 14. Gross Proceeds Paid to an Attorney

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.
However, these rules do
1099 Misc Line By Line
Box 14. Gross Proceeds Paid to an Attorney



These rules apply whether or not the legal services are provided to the
payer and whether or not the attorney is 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.
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.
1099 Misc Line By Line
Box 14. Gross Proceeds Paid to an Attorney



However, these rules do not apply to wages paid to
attorneys that are reportable on Form W-2 or to profits
distributed by a partnership to its partners that are
reportable on:
Schedule K-1 (Form 1065), Partner's Share of Income,
Deductions, Credits, etc., or
Schedule K-1 (Form 1065-B), Partner's Share of Income
(Loss) From an Electing Large Partnership.
1099 Misc Line By Line
Box 15a. Section 409A Deferrals



You do not have to complete this box.
If you complete this box,
 Enter the total amount deferred during the year of at least $600
for the nonemployee under all nonqualified plans.
 The deferrals during the year include earnings on the current
year and prior year deferrals
For deferrals and earnings under NQDC plans for employees, see
the Instructions for Forms W-2 and W-3.
1099 Misc Line By Line
Box 15a. Section 409A Income



Enter all amounts deferred (including earnings on amounts
deferred) that are includible in income under section 409A because
the NQDC plan fails to satisfy the requirements of section 409A.
Do not include amounts properly reported on a Form 1099-MISC,
corrected Form 1099-MISC, Form W-2, or Form W-2c for a prior
year.
Also, do not include amounts that are considered to be subject to a
substantial risk of forfeiture for purposes of section 409A
1099 Misc Line By Line
Boxes 16-18. State Information








These boxes, and Copies 1 and 2, are provided for your convenience
only and need not be completed for the IRS.
Use the state information boxes to report payments for up to two
states. Keep the information for each state separated by the dash
line.
If you withheld state income tax on this payment, you may enter it
in box 16.
In box 17, enter the abbreviated name of the state and the payer's
state identification number.
The state number is the payer's identification number assigned by
the individual state.
In box 18, you may enter the amount of the state payment.
Use Copy 1 to provide information to the state tax department.
Give Copy 2 to the recipient for use in filing the recipient's state
income tax return.
1099 Misc Line By Line



We are done with 1099 Misc.
Hurray!!!
Questions ????????
Employee or Independent
Contractor?
Robert J. Kiggins
General Test

Generally an employee relationship exists when the person for whom
services are performed has

the right to control and direct the individual who performs ' the services,



That is an employee is subject to the will and control of the employer not
only as to what shall be done but how it shall be done.






not only as to the result to be accomplished by the Work
but also as to the details and means by which that result is accomplished.
In this connection, it is not necessary that the employer actually direct or control the
manner in which the services are performed; it is sufficient if he has the right to do so.
The right to discharge is also an important factor indicating that the person
possessing that right is an employer.
Other factors characteristic of an employer, but not -necessarily present in
every case, are
the furnishing 'Of tools and
the furnishing of a place to work
to the individual who performs the services.
General Test



In general, if an, individual is subject to the control or direction of
another merely as to the result to be accomplished by the work and
not as to the means and methods for accomplishing the result, he is
an independent contractor.
An individual performing services as an independent contractor' is
not as to such services an employee under the usual common law
rules.
Individuals such as physicians, lawyers, dentists, veterinarians,
construction contractors, public stenographers, and auctioneers,
engaged in the pursuit of an independent trade, business, or
profession, in which they offer their services to the public, are
independent Contractors and not employees.
Revenue Ruling 87-41: The Twenty
Factors

To help determine whether a worker is an employee under the
common law rules, the IRS identified 20 factors that



These factors, set forth in Revenue Ruling 87-41, were based on the
circumstances that the courts identified and relied upon to decide
whether an employment relationship existed.
Not all the factors must be present to find an
employee/employment relationship,




may indicate whether the employer can exercise enough control to establish an
employer-employee relationship.
but the factors are guides to use
to assess the likelihood as to whether an individual is an employee or an
independent contractor.
(1) Instructions. An employee must comply with instructions about when,
where and how to work. The control factor is present if the employer has
the right to require compliance with the instructions.
Revenue Ruling 87-41: The
Twenty Factors


(2) Training. An employee receives on-going training from, or at the direction of,
the employer.
Independent contractors use their own methods and receive no training from the
purchasers of their services.


(3) Integration. An employee’s services are integrated into the business operations
because the services are important to the business. This shows that the worker is
subject to direction and control of the employer.


(4) Services rendered personally. If the services must be rendered personally,
presumably the employer is interested in the methods used to accomplish the work
as well as the end results. An employee often does not have the ability to assign their
work to other employees, an independent contractor may assign the work to others.


(5) Hiring, supervising and paying assistants. If an employer hires, supervises
and pays assistants, the worker is generally categorized as an employee. An
independent contractor hires, supervises and pays assistants under a contract that
requires him or her to provide materials and labor and to be responsible only for the
result.
Revenue Ruling 87-41: The
Twenty Factors


(6) Continuing relationship. A continuing relationship between the worker and the
employer indicates that an employer-employee relationship exists. The IRS has found
that a continuing relationship may exist where work is performed at frequently
recurring intervals, even if the intervals are irregular.
(7) Set hours of work. A worker who has set hours of work established by an
employer is generally an employee.


(8) Full time required. An employee normally works full time for an employer.


An independent contractor sets his/her own schedule.
An independent contractor is free to work when and for whom he or she chooses
.
(9) Work done on premises. Work performed on the premises of the employer for
whom the services are performed suggests employer control, and therefore, the
worker may be an employee.

Independent Contractor may perform the work wherever they desire as long as the contract requirements
are performed.


(10) Order or sequence set. A worker who must perform services in the order or
sequence set by an employer is generally an employee. Independent Contractor
performs the work in whatever order or sequence they may desire.
Revenue Ruling 87-41: The
Twenty Factors

(11) Oral or written reports. A requirement that the worker submit regular or
written reports to the employer indicates a degree of control by the employer.


(12) Payments by hour, week or month. Payments by the hour, week or month
generally point to an employer-employee relationship.


(13) Payment of expenses. If the employer ordinarily pays the worker’s business
and/or travel expenses, the worker is ordinarily an employee.


(14) Furnishing of tools and materials. If the employer furnishes significant
tools, materials and other equipment by an employer, the worker is generally an
employee.


(15) Significant investment. If a worker has a significant investment in the
facilities where the worker performs services, the worker may be an independent
contractor.
Revenue Ruling 87-41: The
Twenty Factors




(16) Profit or loss. If the worker can make a profit or suffer a loss, the
worker may be an independent contractor. Employees are typically paid for
their time and labor and have no liability for business expenses.
(17) Working for more than one firm at a time. If a worker performs
services for a multiple of unrelated firms at the same time, the worker may
be an independent contractor.
(18) Making services available to the general public. If a worker
makes his or her services available to the general public on a regular and
consistent basis, the worker may be an independent contractor.
(19) Right to discharge. The employer’s right to discharge a worker is a factor
indicating that the worker is an employee

.
(20) Right to terminate. If the worker can quit work at any time without incurring
liability, the worker is generally an employee.
Three Categories of Control
Factors



Over the years, the Internal Revenue Service recognized changes in business
practices and therefore created three categories of factors to assess the degree of
control and independence.
These factors are to be used in conjunction with the 20 Factors.
(1) Behavioral Control - Includes the type of instructions the business gives to the
worker, such as





when and where to do the work, and
the training the business provides to the worker.
The key consideration is whether the business has retained the right to control the details of the worker’s
performance or has relinquished that right
(2) Financial Control - Address the business’s right to control the business aspects
of the worker’s job.
(3) Relationship Of Parties - The nature of the relationship may be evidenced by:




a written contract;
the benefits the business provides to an employee, such as paid vacation and health coverage;
the permanency of the position; and
the extent to which the services performed are a key aspect of the regular business of the company.
Indicator Zones


The ultimate test is whether the principal has
the “right to direct” and control the individual in
question.
Case law tends to look at six indicator zones to
answer this test:
1.
2.
3.
4.
5.
6.
Details of Work Performance
Expenses of Work Performed
Compensation for Work
Duration of Work Performance
Structure of Work Position
Location of Work Performance
1. Details of Work Performance


Right to Control
 Employee – activities and time are surrendered to the control of
the employer
 Put differently – the employer has the right to say when,
where, and how the worker is to work
 Independent contractor – agreement to accomplish results or to
use skill and care in accomplishing results
Training a Worker


Where a worker is required by the person for whom services are perfomed to be
trained or required to work with an experienced worker this is indicative of an
employee relationship
Set Hours of Work and Requirement to Work Full Time

These are factors indicative of employee status
1. Details of Work Performance


Order or Sequence Set – Tends to Show Employee Status
 Where the worker is required to follow the established routines
and schedules of the person or persons for whom the services
are performed – this indicates employee status
 The key fact to consider is whether the business retains the
right to direct and control the worker, regardless of whether
the business actually exercises that right.
Required Written or Oral Reports – Tends to Show Employee Status
 when the reporting system "measures compliance with
performance standards concerning the details of how the work is
performed, the system and its enforcement are evidence of
control over the worker's behavior
1. Details of Work Performance

Skill
 Less skilled more likely to be employees
 By contrast, highly trained professional
 Almost impossible to give such a person detailed instructions
 In such a case the key point whether the workers are
engaged in the pursuit of an independent' trade, business, or
profession in which they offer their services to the public.



If so – they are likely independent contractors
If not – they are likely employees
Labels

Although the label placed on a relationship is irrelevant if it does not represent its
true substance, it can be helpful in deciphering the parties' intent.
2. Expenses of Work Performance



Payment of business or/or Travel Expenses – indicia of employee status
 Note: clients of lawyers and accountants pay their travel expenses – does not
maker them employees
 Unreimbursed expenses – independent contractors more likely to have these
 IRS does recognized that both employees and independent contractors have
reimbursed expenses
 It is more useful to IC status that worker pays fixed on going costs that are paid
regardless of whether work is being performed
Furnishing of Tools and Materials to Worker – indicia of employee status
 The more valuable the items furnished the more importance that is placed on
this factor
 Relatively minor items furnished by worker do not typically support independent
contractor status
Significant Investment in Business – indicia of IC status


E.g. - Maintaining an office – c.f. but a home office would be scrutinized
Costly equipment – e.g. computer systems
2. Expenses of Work
Performance

Licenses and Fees
 IC’s obtain and pay for licenses (business, trade,
construction permits, and professional licenses)
 IC’s also pay estimated taxes and self-employment
taxes
 W-2 is only evidence of employee status – it’s not
conclusive
 Conversely the same applies as to 1099 – it’s only
evidence of IC status
3. Compensation for Work




Payment by the hour week or month
 Generally indicates EE status
 C.F. Payment by the job or on a commission generally indicates IC status
 A minimum salary or a non-refundable draw is indicative of EE status
Realization of a Profit or a Loss
 Worker subject to real risk of economic loss due to significant investments or
expense liability – IC
 Risk of non-payment of earned amounts – IC
 Is the worker making the decisions that affect the worker’s bottom line – if so IC
Insurance
 Worker’s comp, fidelity bond, medical/dental/disability – Employee
 IC’s provide own insurance in these areas
Benefits
 Tax qualified plan, annuity or cafeteria plan – can only be provided to employees
 Sick pay, paid vacations, bonuses, travel and business expense reimbursement,
advances or drawing account – indicate employee status
4. Duration of Work
Performance

Right of Discharge




Employee – can be fired
IC – generally can’t be fired as long as
performs pursuant to contract
Right of Worker to Terminate = neutral
Length of Relationship

In general, the longer the term of the
relationship the more likely that employee
status will be found
5. Structure of Work Position




Integration into the Business
 The more the success of the business is dependent upon the success of the
worker the more likely that EE status results
 However, this is likely not a determinative factor
 In fact, it is likely less a factor now than in the past
Services rendered personally
 If worker can’t delegate performance – some evidence that worker is EE
 Many courts don’t consider this a helpful factor
Hiring, Supervising and Paying Assistants
 This is some evidence of IC status
 Generally won’t be determinative
Working for more than one firm at a Time
 Some evidence of IC status
 Not determinative – e.g especially if the firms are somewhat related
5. Structure of Work Position


Making service available to General Public

A worker who consistently makes his or her service available
to the general public – strong evidence of IC status

This might be done by advertising, use of business cards, a
web site, or other materials to make the public aware of
availability
Status of Principal



If principal is in business – evidence that worker is EE
Fits into a consideration under “relationship” of the parties
Intent


Status of worker (IC or EE) intended by parties is a factor
However, just calling a worker an EE or IC is not determinative
5. Structure of Work Position

Industry Custom



IE whether workers of the same type are
generally treated as IC’s or EE’s by the
industry
This will generally not be afforded much
weight by the IRS
However, there is case law that does use
industry custom to decide
5. Structure of Work Position

State Law Characterization


It is not determinative whether state law
characterizes a worker (e.g. for
unemployment or workers comp) as an IC or
an EE
In fact, IRS Training Course says state law
determinations should be disregarded
Rationale – different standards apply
 Usually under broader or different definitions of
“employee” than exist under common law

5. Structure of Work Position


Incorporation – Worker sets up Corporate Shell
 This will do the trick of making the corporation an IC
 However, the worker in turn will be an employee of his
corporation
 It also means the workers corporation will have to do payroll
withholding, provide worker’s compensation, provide disability
and generally do what a payroll office function has to do
Location of work performance




If worker performs on premises furnished by person hiring – some evidence of EE
CF – if worker performs off premises – some evidence of IC
These days – remote home office workers are becoming more common – many are EE’s
Probably more the key is if the worker has to work on premises of hirer, at set hours, and on
set dats
Backup Withholding
Robert J. Kiggins
Backup Withholding
What is Backup Withholding?

Income tax may have to be withheld at a flat rate of
28% on the following types of income:






Interest,
Dividends,
Rents
Royalties,
Commissions and fees paid to independent contractors,
Payments from brokers on stock and bond transactions.
Backup Withholding
When does the IRS require Backup
Withholding?
 The payee fails to furnish his or her
taxpayer identification number (TIN) to
you.
 For interest, dividend, and broker and
barter exchange accounts the payee fails
to certify, under penalties of perjury, that
the TIN provided is correct,
Backup Withholding
When does the IRS require Backup Withholding? Continued
 The IRS notifies you to impose backup withholding
because the payee furnished an incorrect TIN,
 For interest and dividend accounts or instruments, you
are notified that the payee is subject to backup
withholding or
 For interest and dividend accounts the payee fails to
certify to you, under penalties of perjury, that he or she
is not subject to backup withholding
Backup Withholding
Penalties

If you do not collect and pay over backup
withholding from affected payees as
required, you may become liable for any
uncollected amount!!!!
When to Apply Backup
Withholding
1.
Failure to furnish TIN in the manner
required.


Withhold on payments made until the TIN is furnished in the manner
required.
Special backup withholding rules may apply if the payee has applied for
a TIN.
 The payee may certify to this on Form W-9 by noting "Applied For"
in the TIN block and by signing the form.
 This form then becomes an "awaiting-TIN" certificate, and the
payee has 60 days to obtain a TIN and furnish it to you.
 If you do not receive a TIN from the payee within 60 days and you
have not already begun backup withholding, begin backup
withholding and continue until the TIN is provided.
When to Apply Backup
Withholding
1. Failure to furnish TIN in the
manner required – Cont’d.


The 60-day exemption from backup withholding applies only to
interest and dividend payments and certain payments made with
respect to readily tradable instruments.
Therefore, any other payment, such as nonemployee
compensation, is subject to backup withholding even if the
payee has applied for and is awaiting a TIN.
When to Apply Backup
Withholding
2. Notice from the IRS that payee's
TIN is incorrect.




You may choose to withhold on any reportable payment made to
the account(s) subject to backup withholding after receipt of a
backup withholding notice.
But you must withhold on any reportable payment made to the
account more than 30 business days after you received the
notice.
This triggers a “B” Notice Requirement – More on this in a bit
Stop withholding within 30 days after you receive a certified
Form W-9 (or other form that requires the payee to certify under
penalty of perjury).
When to Apply Backup
Withholding
3. Notice from the IRS that payee is
subject to backup withholding due to
notified payee underreporting.




You may choose to withhold on any reportable payment made to the
account(s) subject to backup withholding after receipt of the notice,
but you must withhold on any reportable payment made to the account
more than 30 business days after you receive the notice.
The IRS will notify you in writing when to stop withholding, or the payee
may furnish you a written certification from the IRS stating when the
withholding should stop.
In most cases, the stop date will be January 1 of the year following the
year of the notice.
When to Apply Backup
Withholding
4. Payee failure to certify that he or
she is not subject to backup
withholding.
 Withhold on reportable interest and
dividends until the certification has been
received.
Backup Withholding – B Notices


How do I know if a TIN on my account is incorrect?
 The IRS will send you a CP2100 or a CP2100A Notice and a listing of
incorrect name/TINs.
This will trigger a Requirement that you send a “B” Notice to the
Accounts Involved
 A "B" Notice is a backup withholding notice.

There are two "B" Notices -- the First "B" Notice and the Second "B"
Notice.
 You must send the First "B" Notice and a Form W-9 to a payee after
you receive the first CP2100/CP2100A Notice with respect to this
account for the purpose of soliciting a correct name/TIN
combination.
Backup Withholding – B Notices


The text of the Second "B" Notice is different than that of the
First "B" Notice.
 It tells the payee to contact IRS or SSA to obtain the correct
name/TIN combination.
 The mailing of the second notice should not include a Form
W-9. You must send the second B Notice after receiving the
second CP2100 or CP2100A with respect to this account. The
payee must certify the Name/TIN combination after receiving
the second "B" Notice.
Generally, you do not have to send a "B" Notice more than two
times within three calendar years to the same account.
Backup Withholding
Who's Exempt from Backup
Withholding?

US citizens and resident aliens will be exempt
from backup withholding if:


You properly report your name and Social Security
number to the payer using Form W-9, and that
information matches the IRS records,
You have not been notified by the IRS that you are
subject to mandatory backup withholding.
Backup Withholding
How do I get the individual's taxpayer
ID?
 Use Form W-9 to request the identification
number of the individual.
What if the individual refuses or
neglects to give the taxpayer ID
number?
 If you do not receive the information, start
backup withholding immediately and
continue until you receive it.
Backup Withholding
Reporting backup withholding.
 Report backup withholding on Form 945,
Annual Return of Withheld Federal Income
Tax
 Additional information. For more
information about backup withholding, see
Pub. 1281.
Backup Withholding
How do I deposit the backup
withholding amounts?





Generally the deposit rules for Form 945 are the same as those for
Form 941 (payroll taxes).
You are a semiweekly or monthly depositor, depending on the
amount deposited.
You may use the IRS e-file (EFTPS) system or make deposits using
the deposit coupon.
There are some special rules that relate to depositing backup
withholding
Read the Instructions for Form 945 for more information.
Filing with the IRS and
Correcting Returns
Robert J. Kiggins
Intro to Filing
Caveat: Don’t confuse filing with IRS with sending reports to Payees . Here we
are generally talking about filing with the IRS
When To File

File Forms 1099 on paper by February 28, 2012, or April 2, 2012, if filing electronically. Also file Form 1096 with
paper forms.

You will meet the requirement to file if the form is properly addressed and mailed on or before the due date. If
the regular due date falls on a Saturday, Sunday, or legal holiday, file by the next business day. A business day is
any day that is not a Saturday, Sunday, or legal holiday.
Private delivery services. You can use certain private delivery services designated by the IRS to meet the “timely
mailing as timely filing” rule for information returns. The list includes only the following.




DHL Express (DHL): DHL Same Day Service.
Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2 Day, FedEx International
Priority, and FedEx International First.
United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M.,
UPS Worldwide Express Plus, and UPS Worldwide Express.
The private delivery service can tell you how to get written proof of the mailing date.
Intro to Filing







Private delivery services cannot deliver items to P.O. boxes. You must use the U.S. Postal Service to mail any item
to an IRS P.O. box address
Reporting period. Forms 1099 are used to report amounts paid during the calendar year. Forms 5498, 5498ESA, and 5498-SA are used to report amounts contributed and the fair market value of an account for the
calendar year.
Extension. You can get an automatic 30-day extension of time to file by completing Form 8809, Application for
Extension of Time To File Information Returns.

The form may be submitted on paper, or through the FIRE (Filing Information Returns Electronically)
system either as a fill-in form or an electronic file. No signature or explanation is required for the extension.

However, you must file Form 8809 by the due date of the returns in order to get the 30-day extension.
Under certain hardship conditions you may apply for an additional 30-day extension. See the instructions for Form
8809 for more information.
How to apply.

As soon as you know that a 30-day extension of time to file is needed, file Form 8809.
If you are requesting an extension for 10 or fewer filers, follow the instructions on Form 8809 and mail it to the
address listed in the instructions on the form or you can fax it. See the instructions for Form 8809 for more
information.
If you are requesting an extension for more than 10 filers, you must submit the extension request online or
electronically through the FIRE system.
Intro to Filing






Where to File
Send all information returns filed on paper to the following:
If your principal business, office or agency, or legal residence in the case of an individual, is located
in Alabama, Arizona, Arkansas, Connecticut, Delaware, Florida, Georgia, Kentucky, Louisiana, Maine,
Massachusetts, Mississippi, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio,
Pennsylvania, Rhode Island, Texas, Vermont, Virginia, West Virginia :

Department of the Treasury
Internal Revenue Service Center
Austin, TX 73301
If your principal business, office or agency, or legal residence in the case of an individual, is located
in Alaska, California, Colorado, District of Columbia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Maryland,
Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, North Dakota, Oklahoma, Oregon, South Carolina,
South Dakota, Tennessee, Utah, Washington, Wisconsin, Wyoming:

Department of the Treasury
Internal Revenue Service Center
Kansas City, MO 64999
If your legal residence or principal place of business or principal office or agency is outside the United States, file
with the Department of the Treasury, Internal Revenue Service Center, Austin, TX 73301.
State and local tax departments. Contact the applicable state and local tax department as necessary for
reporting requirements and where to file.
Form 1096 – Paper Form Filers



Filing Returns With the IRS
The IRS strongly encourages the quality review of data before filing to prevent
erroneous notices from being mailed to payees (or others for whom information is
being reported).
If you must file any 1099 with the IRS and you are filing paper forms, you must send
a Form 1096 with each type of form as the transmittal document.



1.
2.

You must group the forms by form number and submit each group with a separate Form 1096.
For example, if you file Forms 1099-DIV, 1099-INT and 1099-MISC, complete one Form 1096 to transmit
Forms 1099-DIV , another for Forms 1099-INT, and a third for Forms 1099-MISC. Specific instructions for
completing Form 1096 are included on the form.
Transmitters, paying agents, etc. A transmitter, service bureau, paying agent,
or disbursing agent (hereafter referred to as “agent”) may sign Form 1096 on behalf
of any person required to file (hereafter referred to as “payer”) if the conditions in 1
and 2 below are met.
The agent has the authority to sign the form under an agency agreement (oral,
written, or implied) that is valid under state law and
The agent signs the form and adds the caption “For: (Name of payer).”
Signing of the form by an authorized agent on behalf of the payer does not relieve
the payer of the liability for penalties for not filing a correct, complete, and timely
Form 1096 and accompanying returns.
Filing – Additional General
Considerations




Forms 1099 or acceptable substitute statements to recipients issued by a service bureau or agent should show
the same payer's name as shown on the information returns filed with the IRS.
For information about the election to report and deposit backup withholding under the agent's TIN and how to
prepare forms if the election is made, see Rev. Proc. 84-33, 1984-1 C.B. 502, and the Instructions for Form 945.
Keeping copies. Generally, keep copies of information returns you filed with the IRS or have the ability to
reconstruct the data for at least 3 years, 4 years for Form 1099-C, from the due date of the returns. Keep copies
of information returns for 4 years if backup withholding was imposed.
Shipping and mailing. Send the forms to the IRS in a flat mailing (not folded). If you are sending many
forms, you may send them in conveniently sized packages. On each package, write your name, number the
packages consecutively, and place Form 1096 in package number one. Postal regulations require forms and
packages to be sent by First-Class Mail.
Paper Filing



Paper Document Reporting
If you are required to file 250 or more information returns, you must file electronically
Follow these guidelines.

If you have a small number of forms, consider contacting an IRS business partner who may be able to prepare them
with little or no cost to you.

Type entries using black ink in 12-point Courier font. Copy A is read by machine and must be typed clearly using no
corrections in the data entry fields. Data must be printed in the middle of the blocks, well separated from other
printing and guidelines.

Entries completed by hand, or using script, italic, or proportional spaced fonts, or in colors other than black, cannot
be read correctly by machine.

Make all dollar entries without the dollar sign, but include the decimal point (00000.00). Show the cents portion of the
money amounts. If a box does not apply, leave it blank.

Do not enter 0 (zero) or “None” in money amount boxes when no entry is required. Leave the boxes blank unless the
instructions specifically require that you enter a 0 (zero). For example, in some cases, you must enter 0 (zero) to
make corrections. See part H on this page.

Do not enter number signs (#) e.g. use RT 2, not Rt. #2.

Send the entire page of Copy A of your information returns with Form 1096 to the IRS even if some of the forms are
blank or void

Do not use staples on any forms.

To locate an IRS business partner who may be able to offer low-cost or even free filing of certain forms, enter e-file
for Business Partners in the Search box on IRS.gov.
Paper Filings


Multiple filings. If, after you file Forms 1099 you discover additional forms that
are required to be filed, file these forms with a new Form 1096. Do not include copies
or information from previously filed returns.
Required format. Because paper forms are scanned, all Forms 1096 and Copies A
of Forms 1099, must be prepared in accordance with the following instructions. If
these instructions are not followed, you may be subject to a penalty for each
incorrectly filed document.
 Do not cut or separate Copies A of the forms that are printed two or three to a
sheet (except Forms W-2G and 1098-C).
 Generally, Forms 1099 are printed two or three to an 8 x 11 inch sheet.
 Form 1096 is printed one to an 8 x 11 inch sheet.
 These forms must be submitted to the IRS on the 8 x 11 inch sheet.

If at least one form on the page is correctly completed, you must submit the
entire page
 Send the forms to the IRS in a flat mailing (not folded).
Paper Filings










No photocopies of any forms are acceptable..
Do not staple, tear, or tape any of these forms. It will interfere with the IRS' ability to scan the documents.
Pinfeed holes on the form are not acceptable. Pinfeed strips outside the 8 x 11 inch area must be removed
before submission, without tearing or ripping the form. Substitute forms prepared in continuous or strip
form must be burst and stripped to conform to the size specified for a single sheet (8 x 11 inches) before
they are filed with the IRS.
Do not change the title of any box on any form. Do not use a form to report information that is not properly
reportable on that form. If you are unsure of where to report the data, call the information reporting call
site at 1-866-455-7438 (toll free).
Report information only in the appropriate boxes provided on the forms. Make only one entry in each box
unless otherwise indicated in the form's specific instructions.
Do not submit any copy other than Copy A to the IRS.
Do not use prior year forms unless you are reporting prior year information. Do not use subsequent year
forms for the current year. Because forms are scanned, you must use the current year form to report
current year information.
Use the official forms or substitute forms that meet the specifications in Pub. 1179. If you submit substitute
forms that do not meet the current specifications and that are not scannable, you may be subject to a
penalty for each return for improper format. See part O on page 11.
Do not use dollar signs ($) (they are preprinted on the forms), ampersands (&), asterisks (*), commas (,),
or other special characters in money amount boxes.
Do not use apostrophes ('), asterisks (*), or other special characters on the payee name line.
Paper Filings - Errors




Common errors. Be sure to check your returns to prevent the following common errors.
Duplicate filing. Do not send the same information to the IRS more than once. Also see Multiple
filings on this page.
Filer's name, address, and TIN are not the same on Form 1096 and the attached Forms 1099.
Decimal point to show dollars and cents omitted. For example, 1230.00 is correct, not 1230.
Two or more types of returns submitted with one Form 1096 (for example, Forms 1099-INT and
1099-MISC with one Form 1096). You must submit a separate Form 1096 with each type of
return.
Correcting Paper Filed Returns

If you filed a return with the IRS and later discover you made an error on it, you must:

Correct it as soon as possible and file Copy A and Form 1096 with your Internal Revenue Service Center

Furnish statements to recipients showing the correction.

When making a correction, complete all information (see Filing corrected returns on paper forms below).

Do not cut or separate forms that are two or three to a page. Submit the entire page even if only one of
the forms on the page is completed.

Do not staple the forms to Form 1096.

Do not send corrected returns to the IRS if you are correcting state or local information only. Contact the
state or local tax department for help with this type of correction.

To correct payer information, write a letter to the IRS:
1. Name and address of the payer
2. Type of error (including the incorrect payer name/TIN that was reported)
3. Tax year
4. Payer TIN
5. Transmitter Control Code (TCC)
6. Type of return
7. Number of payees
8. Filing method (paper or electronic)
9. Was federal income tax withheld?

Send the letter to Internal Revenue Service, Information Returns Branch, 230 Murall Drive, Mail Stop
4360, Kearneysville, WV 25430.

If a payer realizes duplicate reporting or a large percentage of incorrect information has been filed,
contact the information reporting customer service site at 1-866-455-7438 for further instructions.
Correcting Paper Filed Returns





Form 1096.

Use a separate Form 1096 for each type of return you are correcting.

For the same type of return, you may use one Form 1096 for both originals and corrections.

You do not need to correct a previously filed Form 1096.
CORRECTED checkbox.

Enter an “X” in the corrected checkbox only when correcting a form previously filed with the IRS or
furnished to the recipient.

Certain errors require two returns to make the correction.

See Filing corrected returns on paper forms below to determine when to mark the “CORRECTED”
checkbox.
Account number.

If the account number was provided on the original return, the same account number must be included on
both the original and corrected returns to properly identify and process the correction

If the account number was not provided on the original return, do not include it on the corrected return.
See part L on page 8.
Recipient's statement. You may enter a date next to the “CORRECTED” checkbox. This will help the recipient
in the case of multiple corrections.
Filing corrected returns on paper forms.

The error charts following give step-by-step instructions for filing corrected returns for the most frequently
made errors.

They are grouped under Error Type 1 or 2.

Correction of errors may require the submission of more than one return. Be sure to read and follow the
steps given.
Error Type 1 – Form 1099
Incorrect money amount(s), code, or
checkbox,
or
Incorrect address,
or
Incorrect payee name,
or
1.
2.
3.
Prepare a new information
return.
Enter an “X” in the
“CORRECTED” box (and date
(optional)) at the top of the
form.
Correct any recipient information
such as money amounts and
address. Report other
information as per original
return.
Error Type 1- Form 1096
A return was filed when one
should not have been filed.
These errors require only one return to
make the correction.
1.
2.
3.
Caution: If you must correct a TIN
and/or a name and address, follow the
instructions under Error Type 2.
4.
Prepare a new transmittal Form 1096.
Provide all requested information on
the form as it applies to Part A, 1 and
2.
File Form 1096 and Copy A of the
return with the appropriate service
center.
Do not include a copy of the original
return that was filed incorrectly
Error Type 2
No payee TIN (SSN, EIN, QI-EIN, or ITIN),
or
Incorrect payee TIN,
or
Incorrect name and address,
or
Step 1. Identify incorrect return submitted.
Original return filed using wrong type of
return (for example, a Form 1099-DIV was filed
when a Form 1099-INT should have been filed).
Step 2. Report correct information.
Two separate returns are required to make the
correction properly. Follow all instructions for both
Steps 1 and 2.
1.
Prepare a new information return.
2.
Enter an “X” in the “CORRECTED” box
(and date (optional)) at the top of the
form
3.
Enter the payer, recipient, and account
number information exactly as it
appeared on the original incorrect
return; however, enter 0 (zero) for all
money amounts.
A. Form 1099
Prepare a new information return.
Do not enter an “X” in the “CORRECTED” box at
the top of the form. Prepare the new return as
though it is an original.
Include all the correct information on the form
including the correct TIN, name, and address.
B. Form 1096
Prepare a new transmittal Form 1096.
Enter the words “Filed To Correct TIN,” “Filed To
Correct Name and Address,” or “Filed To Correct
Return” in the bottom margin of the form.
Provide all requested information on the form as it
applies to the returns prepared in Steps 1 and 2.
File Form 1096 and Copy A of the return with the
appropriate service center.
Do not include a copy of the original return that
was filed incorrectly.
Void Returns


An “X” in the “VOID” box at the top of the form will not correct a previously
filed return. See foregoing for instructions for making corrections.
VOID box. If a completed or partially completed Form 1097, 1098, 1099,
3921, 3922, or 5498 is incorrect and you want to void it before submission
to the IRS:

enter an “X” in the “VOID” box at the top of the form. For example, if
you make an error while typing or printing a form, you should void it.

The return will then be disregarded during processing by the IRS.

Go to the next form on the page, or to another page, and enter the
correct information; but do not mark the “CORRECTED” box

Do not cut or separate the forms that are two or three to a page.

Submit the entire page even if only one of the forms on the page is a
good return.
Electronic Reporting


You can file electronically through the Filing Information Returns Electronically
System (FIRE System);

however, you must have software that can produce a file in the proper format
according to IRS Pub. 1220.

The FIRE System does not provide a fill-in form option for information return
reporting. i.e. you need to work with a private vendor
 The FIRE System operates 24 hours a day, 7 days a week. You may access the
FIRE System via the Internet at fire.irs.gov. See Pub. 1220 for more info
Due dates. File Forms 1099 electronically through the FIRE System by April 2,
2012.
You can request an extension – same rules apply as for paper filing – i.e Form 8809 filed via FIRE
Who must file electronically. If you are required to file 250 or more information returns, you must file
electronically. The 250-or-more requirement applies separately to each type of form. For example, if you must file
500 Forms 1098 and 100 Forms 1099-A, you must file Forms 1098 electronically, but you are not required to file
Forms 1099-A electronically.
The electronic filing requirement does not apply if you apply for and receive a hardship waiver



Electronic Filing

Filing requirement applies separately to originals and corrections. The electronic filing requirements
apply separately to original returns and corrected returns. Originals and corrections are not aggregated to
determine whether you are required to file electronically



How to get approval to file electronically. File Form 4419, Application for Filing Information Returns
Electronically, at least 30 days before the due date of the returns. File Form 4419 for all types of returns that will
be filed electronically. See Form 4419 for more information. Once you have received approval, you need not
reapply each year. The IRS will provide a written reply to the applicant and further instructions at the time of
approval, usually within 30 days.
How to request a waiver from filing electronically. To receive a waiver from the required filing of
information returns electronically, submit Form 8508, Request for Waiver From Filing Information Returns
Electronically, at least 45 days before the due date of the returns. You cannot apply for a waiver for more than 1
tax year at a time. If you need a waiver for more than 1 tax year, you must reapply at the appropriate time each
year.




For example, if you file 400 Forms 1098 electronically and you are making 75 corrections, your corrections can be filed on paper because the number of
corrections for Form 1098 is less than the 250 filing requirement. However, if you were filing 250 or more Form 1098
If a waiver for original returns is approved, any corrections for the same types of returns will be covered under the waiver. However, if you submit original
returns electronically but you want to submit your corrections on paper, a waiver must be approved for the corrections if you must file 250 or more corrections.
If you receive an approved waiver, do not send a copy of it to the service center where you file your paper returns. Keep the waiver for your records only.
Penalty. If you are required to file electronically but fail to do so, and you do not have an approved waiver, you
may be subject to a penalty of up to $100 per return for failure to file electronically unless you establish
reasonable cause. However, you can file up to 250 returns on paper; those returns will not be subject to a
penalty for failure to file electronically
corrections, they would have to be filed electronically.
Furnishing Statements to
Recipients




If you are required to file Forms 1099you must also furnish statements to recipients containing
the information furnished to the IRS and, in some cases, additional information. Be sure that the
statements you provide to recipients are clear and legible.
Substitute statements. If you are not using the official IRS form to furnish statements to
recipients, see Pub. 1179 for specific rules about providing “substitute” statements to recipients.
Generally, a substitute is any statement other than Copy B of the official form. You may develop
them yourself or buy them from a private printer. However, the substitutes must comply with the
format and content requirements specified in Pub. 1179 that is available on IRS.gov.
Telephone number. You are required to include the telephone number of a person to contact
on the following statements to recipients: 1099-A, 1099-B, 1099-C, 1099-CAP, 1099-DIV, 1099-G
(excluding state and local income tax refunds), 1099-H, 1099-INT, 1099-K, 1099-LTC, 1099-MISC
(excluding fishing boat proceeds), 1099-OID, 1099-PATR, 1099-Q, and 1099-S.

You may include the telephone number in any conspicuous place on the statements.

This number must provide direct access to an individual who can answer questions about
the statement. Although not required, if you report on other Forms 1099 and 5498, you are
encouraged to furnish telephone numbers.
Rules for furnishing statements. Different rules apply to furnishing statements to recipients
depending on the type of payment (or other information) you are reporting and the form you are
filing.
Statements to Recipients


Dividend, interest, and royalty payments. For payments of dividends reported on Form 1099-DIV, interest including original issue discount and
tax-exempt interest) under section 6049 (reported on Form 1099-INT or 1099-OID), or royalties under section 6050N (reported on Form 1099-MISC or
1099-S)

you are required to furnish an official IRS Form 1099 or an acceptable substitute Form 1099 to a recipient

either in person, by First-Class Mail to the recipient's last known address, or electronically (see Electronic recipient statements below ).

Statements may be sent by intraoffice mail if you use intraoffice mail to send account information and other correspondence to the recipient.
Statement mailing requirements for Forms 1099-DIV, 1099-INT, 1099-OID, and 1099-PATR, and forms reporting royalties only.

The following statement mailing requirements apply only to Forms 1099-DIV (except for section 404(k) dividends), 1099-INT (except for
interest reportable in the course of your trade or business under section 6041), 1099-OID, 1099-PATR, and timber royalties reported under
section 6050N (on Form 1099-MISC or 1099-S).

The mailing must contain the official IRS Form 1099 or an acceptable substitute and may also contain the following enclosures: (a) Form W-2,
applicable Form W-8, Form W-9, or other Forms W-2G, 1097, 1098, 1099, 3921, 3922, and 5498 statements; (b) a check from the account
being reported; (c) a letter explaining why no check is enclosed; (d) a statement of the person's account shown on Forms 1097, 1098, 1099,
3921, 3922, or 5498; and (e) a letter explaining the tax consequences of the information shown on the recipient statement.

A statement of the person's account (year-end account summary) that you are permitted to enclose in a statement mailing may include
information similar to the following: (a) the part of a mutual fund distribution that is interest on U.S. Treasury obligations; (b) accrued interest
expense on the purchase of a debt obligation; and (c) the cost or other basis of securities and the gain/loss on the sale of securities.

No additional enclosures, such as advertising, promotional material, or a quarterly or annual report, are permitted. Even a sentence or two on
the year-end statement describing new services offered by the payer is not permitted. Logos are permitted on the envelope and on any nontax
enclosures.

A recipient statement may be perforated to a check or to a statement of the recipient's specific account. The check or account statement to
which the recipient statement is perforated must contain, in bold and conspicuous type, the legend “Important Tax Return Document Attached.”

The legend “Important Tax Return Document Enclosed” must appear in a bold and conspicuous manner on the outside of the envelope and on
each letter explaining why no check is enclosed, or on each check or account statement that is not perforated to the recipient statement. The
legend is not required on any tax form, tax statement, or permitted letter of tax consequences included in a statement mailing. Further, you
need not pluralize the word “document” in the legend simply because more than one recipient statement is enclosed.
Statements to Recipients
Other information. Statements to recipients for Forms 1099-A, 1099-B, 1099-C, 1099-CAP, 1099-G, 1099-H, 1099-K,
1099-LTC, 1099-MISC, 1099-Q, 1099-R, 1099-SA, 1099-DIV only for section 404(k) dividends reportable under section
6047, 1099-INT only for interest reportable in the course of your trade or business under section 6041, or 1099-S only for
royalties

Need not be, but can be, a copy of the official paper form filed with the IRS.

If you do not use a copy of the paper form, the form number and title of your substitute must be the same as the official
IRS form.

All information required to be reported must be numbered and titled on your substitute in substantially the same manner as
on the official IRS form
However, if you are reporting a payment as “Other income” in Box 3 of Form 1099-MISC, you may substitute appropriate
explanatory language for the box title. For example, for payments of accrued wages to a beneficiary of a deceased
employee required to be reported on Form 1099-MISC, you might change the title of Box 3 to “Beneficiary payments” or
something similar.

Appropriate instructions to the recipient, similar to those on the official IRS form, must be provided to aid in the proper
reporting of the items on the recipient's income tax return. For payments reported on Form 1099-B, rather than furnish
appropriate instructions with each Form 1099-B statement, you may furnish to the recipient one set of instructions for all
statements required to be furnished to a recipient in a calendar year.

Except for royalties reported on Form 1099-MISC, the statement mailing requirements explained on page 8 do not apply to
statements to recipients for information reported on the forms listed under Other information above. You may combine the
statements with other reports or financial or commercial notices, or expand them to include other information of interest to
the recipient. Be sure that all copies of the forms are legible. See Pub. 1179 for certain “composite” statements that are
permitted.

Statement to Recipients



When to furnish forms or statements. Generally, you must furnish Forms 1099
information by January 31, 2012. Forms 1099-B, 1099-S, and 1099-MISC (only if you
are reporting payments in boxes 8 or 14) must be furnished by February 15, 2012. at
the time of
You will meet the requirement to furnish the statement if it is properly addressed and
mailed, or, with respect to electronic recipient statements, posted to a website, on or
before the due date. If the regular due date falls on a Saturday, Sunday, or legal
holiday, the due date is the next business day. A business day is any day that is not a
Saturday, Sunday, or legal holiday. redemption.
Electronic recipient statements. If you are required to furnish a written
statement (Copy B or an acceptable substitute) to a recipient, then you may furnish
the statement electronically instead of on paper. This includes furnishing the
statement to recipients of, 1099-A, B, C, CAP, DIV, G, H, INT, K, LTC, MISC, OID,
PATR, Q, R, S, SA.
 Recipient must consent and there are format, posting and notification
requirements!!!
Form 1099-R
Robert J. Kiggins
What Gets Reported

File Form 1099-R, Distributions From Pensions, Annuities, Retirement or ProfitSharing Plans, IRAs, Insurance Contracts, etc., for each person to whom you have
made a designated distribution or are treated as having made a distribution of $10 or
more from:


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
profit-sharing or retirement plans,
any individual retirement arrangements (IRAs),
annuities, pensions, insurance contracts
survivor income benefit plans, permanent and total disability payments under life insurance contracts,
charitable gift annuities, etc.
Box-by-Box - Box 1 Gross
Distribution



Box 1. Gross distribution
Enter the total amount of the distribution before income tax or other deductions were withheld. Include direct
rollovers, IRA rollovers to accepting employer plans, premiums paid by a trustee or custodian for the cost of
current life or other insurance protection, including a recharacterization and a Roth IRA conversion.
There is a very important difference between a conversion and a recharacterization. Fortunately, the two terms
are related:



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
IRA Conversion - this refers to the rollover or moving of assets from a Traditional IRA, SIMPLE IRA, or other qualified retirement plan into a Roth IRA. There
are qualification rules as well as tax implications when converting to a Roth IRA, both of which might prompt the holder to recharacterize the conversion.
IRA Recharacterization - a recharacterization refers to the undoing, switching, or reversal of an IRA contribution or conversion
Include in this box the value of U.S. Savings Bonds distributed from a plan. Enter the appropriate taxable amount
in box 2a. Furnish a statement to the plan participant showing the value of each bond at the time of distribution.
This will provide him or her with the information necessary to figure the interest income on each bond when it is
redeemed.
Include in box 1 amounts distributed from a qualified retirement plan for which the recipient elects to pay health
insurance premiums under a cafeteria plan or that are paid directly to reimburse medical care expenses incurred
by the recipient.
Include in box 1 charges or payments for qualified long-term care insurance contracts under combined
arrangements. Enter Code W in box 7.
In addition to reporting distributions to beneficiaries of deceased employees, report here any death benefit
payments made by employers that are not made as part of a pension, profit-sharing, or retirement plan. Also
enter these amounts in box 2a; enter Code 4 in box 7.
Designated Roth account distributions. If you are making a distribution from a designated Roth account, enter the
gross distribution in box 1, the taxable portion of the distribution in box 2a, the basis included in the distributed
amount in box 5, any amount allocable to an IRA made within the previous 5 years in box 10, and the first year
of the 5-taxable-year period for determining qualified distributions in box 11. Also, enter the applicable code(s) in
box 7.
Box by Box - Box 1 Gross
Distribution



Employer securities and other property. If you distribute employer securities or other property, include in box 1 the FMV of the securities
or other property on the date of distribution. If there is a loss, special treatment applies
If you are distributing worthless property only, you are not required to file Form 1099-R. However, you may file and enter 0 (zero) in
boxes 1 and 2a and any after-tax employee contributions or designated Roth contributions in box 5.
Charitable gift annuities. If cash or capital gain property is donated in exchange for a charitable gift annuity, report the total amount
distributed during the year in box 1. See Charitable gift annuities under Box 3 on page 10.
Line by Line – Box 2a



Generally, you must enter the taxable amount in box 2a. However, if you are unable to reasonably obtain the
data needed to compute the taxable amount leave this box blank.
Do not enter excludable or tax-deferred amounts reportable in boxes 5, 6, and 8.
Enter 0 (zero) in box 2a for:

A direct rollover (other than a qualified rollover contribution under section 408A(e) or an IRR – An In Pland
Roth Rollover) from a qualified plan, section 403(b) plan, a governmental section 457(b) plan, or a rollover
from a designated Roth account into a Roth IRA,

A traditional, SEP, or SIMPLE IRA directly transferred to an accepting employer plan,

An IRA recharacterization,

A nontaxable section 1035 exchange of life insurance, annuity, endowment or long-term care insurance
contracts, or

A nontaxable charge or payment, for the purchase of a qualified long-term care insurance contract, against
the cash value of an annuity contract or the cash surrender value of a life insurance contract.
Recharacterization Example





Recharacterization Example
The calculation of a recharacterization is fairly straightforward. The computation timeline starts
when the contribution is made to the IRA, and ends immediately before the recharacterization
occurs. The amount recharacterized is always the fair market value of the contribution. Let's see
how this works using an example:
In this example, we have a Roth IRA that has a starting balance of $50,000 in June. The holder
decides to convert $5,000 of their Traditional IRA to their Roth IRA, resulting in an Adjusted
Opening Balance of $55,000. In December, the holder receives an incentive compensation
payment, pushing their Adjusted Gross Income (AGI) above the $100,000 Roth IRA contribution
threshold. In this case, the holder is no longer eligible to complete the Roth IRA conversion.
In January of the following year, the holder decides to reverse their conversion, recharacterizing
the Roth IRA conversion as a Traditional IRA. At the time of the recharacterization, the Roth IRA
had a Closing Balance of $60,500. No other funds were transferred into the Roth IRA. During
the recharacterization, both the conversion dollars ($5,000) as well as earnings must be moved
back to the Traditional IRA. The recharacterization amount is the sum of the conversion to be
reversed ($5,000) plus the Net Income on those funds.
Net Income is calculated as:




Net Income = Amount to Recharacterize x ((Closing Balance - Adjusted Opening Balance) /Adjusted Opening Balance)
Net Income = $5,000 x (($60,500 - $55,000) / $55,000)
Net Income = $5,000 x ($5,500 / $55,000) = $500
Therefore, the Recharacterization Amount is calculated as:
Recharacterization Amount = Amount to Recharacterize + Net Income
Recharacterization Amount = $5,000 + $500 = $5,50
Box 2a Annuity Payments


Essentially the annuity payment needs to get
split:
 Attributable to Ee contributions – not taxable
 Attributable to Er contributions – taxable
In most cases (i.e. annuity payment starting
after 11/18/1996) or later the so called
“Simplified Method” must be used. See IRS
Publication 575
Annuity Payments Example





Bill Smith, age 65, began receiving retirement benefits in 2010 under a joint and survivor annuity. Bill's annuity
starting date is January 1, 2010. The benefits are to be paid for the joint lives of Bill and his wife, Kathy, age 65.
Bill had contributed $31,000 to a qualified plan and had received no distributions before the annuity starting date.
Bill is to receive a retirement benefit of $1,200 a month, and Kathy is to receive a monthly survivor benefit of
$600 upon Bill's death.
Bill must use the Simplified Method to figure his taxable. Because his annuity is payable over the lives of more
than one annuitant, he uses his and Kathy's combined ages and Table 2 at the bottom of Worksheet A in
completing line 3 of the worksheet. His completed worksheet is shown below.
Bill's tax-free monthly amount is $100 ($31,000/310) as shown on line 4 of the worksheet. Upon Bill's death, if Bill
has not recovered the full $31,000 investment, Kathy will also exclude $100 from her $600 monthly payment. The
full amount of any annuity payments received after 310 payments are paid must be included in gross income.
If Bill and Kathy die before 310 payments are made, a miscellaneous itemized deduction will be allowed for the
unrecovered cost on the final income tax return of the last to die. This deduction is not subject to the 2%-ofadjustedgross-income limit.
Annuity Payments – Example






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

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

Worksheet A. Simplified Method Worksheet for Bill Smith Keep for Your Records
1. Enter the total pension or annuity payments received this year. Also, add this amount to the total for

Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a . . . . . . . . . . . . . . . . . . . . . 1. $ 14,400
2. Enter your cost in the plan (contract) at the annuity starting date plus any death benefit exclusion.*

See Cost (Investment in the Contract) earlier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. 31,000
Note. If your annuity starting date was before this year and you completed this worksheet last year,
skip line 3 and enter the amount from line 4 of last year’s worksheet on line 4 below (even if the
amount of your pension or annuity has changed). Otherwise, go to line 3.
3. Enter the appropriate number from Table 1 below. But if your annuity starting date was after 1997
and the payments are for your life and that of your beneficiary, enter the appropriate number from

Table 2 below . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. 310

4. Divide line 2 by the number on line 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. 100
5. Multiply line 4 by the number of months for which this year’s payments were made. If your annuity
starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11.

Otherwise, go to line 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. 1,200
6. Enter any amount previously recovered tax free in years after 1986. This is the amount shown on line

10 of your worksheet for last year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. -0
7. Subtract line 6 from line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. 31,000

8. Enter the smaller of line 5 or line 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. 1,200
9. Taxable amount for year. Subtract line 8 from line 1. Enter the result, but not less than zero. Also,
add this amount to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line
17b. Note: If your Form 1099-R shows a larger taxable amount, use the amount figured on this line
instead. If you are a retired public safety officer, see Insurance Premiums for Retired Public Safety






Officers earlier before entering an amount on your tax return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9. $ 13,200
10. Was your annuity starting date before 1987?
M Yes. STOP. Do not complete the rest of this worksheet.
ú No. Add lines 6 and 8. This is the amount you have recovered tax free through 2010. You will need

this number if you need to fill out this worksheet next year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10. 1,200
11. Balance of cost to be recovered. Subtract line 10 from line 2. If zero, you will not have to complete

this worksheet next year. The payments you receive next year will generally be fully taxable . . . . . . 11. $ 29,800
* A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21, 1996.
Table 1 for Line 3
If the age at annuity
starting date was…
Enter on Line 3
55 or under
360
56-60
310
61-65
260
66-70
210
71 or older
160
Table 2 for Line 3
If the combined ages
at annuity starting
date were
Enter on Line 3
110 or under
410
111-120
360
121-130
310
131-140
260
141 or older
210
Line 2a Taxable Amount

There are numerous additional rules that
apply in certain cases such as:




Rollovers
Designated Roth Accounts
Special treatment for distributions of employer
securities
Bottom line : consult with your accountant
or tax attorney on Line 2a – not a do it
yourself project.
Line 2b – Taxable Amount not
Determined


Enter an "X" in this box only if you are unable to reasonably obtain the data needed
to compute the taxable amount (c.f not just because you don’t know the applicable
law)
If you check this box leave 2a blank.
Box 2b – Total Distribution



Enter an “X” only if the amount is a total
distribution
A total distribution is one or more
distributions made within the year in
which the entire amount is distributed
If periodic or installment payments are
made, mark this box in the year final
payments are made
Box 3 – Capital Gains



This only applies to active participation in the plan prior to 1974
Basically the portion of a lump sum distribution allocable to a participants pre 1974
participation in the plans will be eligible for capital gains treatment
Not a lot of cases are left where this will apply
Box 4 – Federal Income Tax
Withheld


Withholding of 20% is required on any designated distribution that's an eligible rollover
distribution, unless there's a direct trustee-to-trustee transfer. Withholding is required on periodic
and lump-sum payments from certain employee plans and certain annuities. However, certain
recipients may elect not to have tax withheld.
Mandatory 20% withholding on eligible rollover distributions.

Unless a distributee elects to have the distribution paid directly to an eligible retirement plan
under the trustee-to-trustee rules (114319), a payor must withhold 20% of any designated
distribution that's an "eligible rollover distribution”

An eligible rollover distribution (reported by the payor on Form 1099-R is any distribution to
an employee from a qualified trust (not from an IRA, SEP, or SIMPLE plan) other than:
 a required distribution under Code Sec. 401(a)(9) – essentially the RMD’s starting at
age 70 1/2;
 any distribution that is one of a series of substantially equal periodic payments made
(a) not less frequently than annually for the life (or life expectancy) of the employee
(or joint lives or expectancies of the employee and his designated beneficiary), or (b)
for a specified period of ten years or more; or
 . . . a hardship distribution from a 401(k) or 403(b) plan.

No withholding is required: (1) if the total distribution paid to the distributee under the plan
within one tax year is expected to be less than $200; or hurricane victims
Box 4 – Federal Income Tax
Withheld



Required withholding for designated distributions.
Withholding is required for designated distributions but the recipient generally may elect out,,
unless the distribution is an eligible rollover distribution

Designated distributions are periodic as well as nonperiodic (including lump-sum) payments
from pension, profit sharing, stock bonus or other employer deferred compensation plans, as
well as from IRAs (other than Roth IRAs) and commercial annuities, whether or not the
contract was purchased under an employer's plan for employees.

Annuity payments and other distributions under most state or local government deferred
compensation plans, including the Civil Service Retirement System are subject to income tax
withholding as well.
The payor of a designated distribution must withhold and is liable for the payment of the tax
(unless the payee elects out).

But in the case of a qualified pension, profit sharing, stock bonus, annuity, or 457
governmental plan, the plan administrator has the responsibility,

Unless he directs the payor to withhold and provides the payor with the information set out
in the regs. In that case, the responsibility reverts to the payor.
Box 4 – Federal Income Tax
Withheld

Withholding from periodic payments.



Tax must be withheld in accordance with a recipient's withholding certificate or, if none, by treating the
payee as a married individual claiming three withholding exemptions even if the payor is aware the payee
is single. The amount to be withheld is calculated separately from any amounts that actually are wages to
the payee for the same period.
To prevent under withholding due to reduced withholding in connection with the Making Work Pay Credit in
2009 and 2010, IRS has provided optional procedures for pension payors allowing for increased
withholding.
Election out of withholding on periodic payments—Form W-4P.



A recipient of periodic payments (except for certain U.S. citizens and expatriates living abroad,) may elect
not to have any tax withheld. The election remains in effect until revoked. Elect (or revoke) on Form W-4P.
If the recipient doesn't furnish his taxpayer identification number (TIN) to the payor or if IRS has notified
the payor that the TIN furnished is incorrect, an election out of withholding isn't effective.
For periodic payments that are "eligible rollover distributions," see above
Box 4 – Federal Income Tax
Withheld


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Withholding from nonperiodic distributions.
The payor of any nonperiodic distribution that is not an eligible rollover distribution subject to
20% mandatory withholding must withhold an amount equal to 10% of that distribution
unless the recipient elects out of withholding .
Electing out of withholding on nonperiodic distributions—Form W-4P.
A payee (except for recipients of eligible rollover distributions , and certain U.S. citizens and
expatriates living abroad) may elect exemption from withholding for any nonperiodic distribution.
The election is made on Form W-4P on a distribution-by-distribution basis.
If the recipient doesn't furnish his taxpayer identification number (TIN) to the payor or if IRS has
notified the payor that the TIN furnished is incorrect, an election out of withholding isn't effective.
Payor must notify payee of right to elect to have no tax withheld.
For periodic payments, the notice to make, renew, or revoke the election out of withholding is
required no earlier than six months before and no later than the date of the first payment.
For nonperiodic payments the notice should be given not earlier than six months before the
distribution and not later than the time that will give the payee reasonable time to elect out.
The notice must state that withholding will apply unless the payee elects otherwise, and if he
elects no withholding, estimated tax may apply.
Box 5. Employee contributions/designated
Roth contributions or insurance premiums




Enter the employee's contributions to a profit-sharing or retirement plan, designated Roth contributions, or
insurance premiums that the employee may recover tax free this year (even if they exceed the box 1 amount).
This amount reflects the portion of the distribution that is tax-free because it is part of the taxpayer's or spouse's
contributions to the account, including profit-sharing and retirement plans, Roth IRA accounts, and certain
insurance premiums.
The entry in box 5 may include any of the following:

(a) designated Roth contributions or contributions actually made on behalf of the employee over the years
under the retirement or profit-sharing plan that were required to be included in the income of the employee
when contributed (after-tax contributions),

(b) contributions made by the employer but considered to have been contributed by the employee under
section 72(f),

(c) the accumulated cost of premiums paid for life insurance protection taxable to the employee in previous
years and in the current year under Regulations section 1.72-16 (cost of current life insurance protection)
(only if the life insurance contract itself is distributed), and

(d) premiums paid on commercial annuities. Do not include contributions to any section 401(k) plan, or any
other contribution to a retirement plan that was not an after-tax contribution.
Generally, for qualified plans, section 403(b) plans, and nonqualified commercial annuities, enter in box 5 the
employee contributions or insurance premiums recovered tax free during the year based on the method you used
to determine the taxable amount to be entered in box 2a. On a separate Form 1099-R, include the portion of the
employee's basis that has been distributed from a designated Roth account
Box 6 – Unrealized Appreciation
in Employer Securities


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

Use this box if a distribution from a qualified plan (except a qualified distribution from
a designated Roth account) includes securities of the employer corporation (or a
subsidiary or parent corporation) and you can compute the NUA in the employer's
securities.
Enter all the NUA in employer securities if this is a lump-sum distribution. If this is not
a lump-sum distribution, enter only the NUA in employer securities attributable to
employee contributions.
See Regulations section 1.402(a)-1(b) for the determination of the NUA. Also see
Notice 89-25, Q/ A-1, 1989-1 C.B. 662.
Include the NUA in box 1 but not in box 2a except in the case of a direct rollover to a
Roth IRA
You do not have to complete this box for a direct rollover.
Box 7 Distribution Codes


Enter an "X" in the IRA/SEP/SIMPLE checkbox if the distribution is from a traditional IRA, SEP IRA, or SIMPLE
IRA. Do not check the box for a distribution from a Roth IRA or for an IRA recharacterization.
Enter the appropriate code(s) in box 7. Use the Guide to Distribution Codes on pages 13 through 15 of IRS
Instructions for Forms 1099-R and 5498 to determine the appropriate code(s) to enter in box 7 for any amounts
reported on Form 1099-R. Read the codes carefully and enter them accurately because the IRS uses the codes to
help determine whether the recipient has properly reported the distribution. If the codes you enter are incorrect,
the IRS may improperly propose changes to the recipient's taxes.
Box 8 - Other


Enter the current actuarial value of an annuity contract that is part of a
lump-sum distribution. Do not include this item in boxes 1 and 2a.
 To determine the value of an annuity contract, show the value as an
amount equal to the current actuarial value of the annuity contract,
reduced by an amount equal to the excess of the employee's
contributions over the cash and other property (not including the
annuity contract) distributed.
 If an annuity contract is part of a multiple recipient lump-sum
distribution, enter in box 8, along with the current actuarial value, the
percentage of the total annuity contract each Form 1099-R represents.
Also, enter in box 8 the amount of the reduction in the investment (but not
below 0 (zero)) against the cash value of an annuity contract or the cash
surrender value of a life insurance contract due to charges or payments for
qualified long-term care insurance contracts.
Box 9a. Your percentage of total
distribution



Use if this is a total distribution of account
assets made to more than 1 recipient
Enter the percentage received by the
person whose name appears on Form
1099-R.
You need not complete this box for any
IRA distributions or for a direct rollover.
Box 9b
Total Employee Contributions



This is the total amount of employee contributions or designated Roth IRA contributions made to the account for
this Form 1099-R, not including amounts already received tax-free in prior years. This box is for informational
purposes for the Recipient only.
It is not required that this be filled out
For a total distribution of the recipient’s account report the total employee contributions or designated Roth
contributions in Box 5 instead of Box 9b
Box 10 – Amount Allocable to
IRR within Past 5 Years



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
IRR = In Plan Roth Rollover
An in-plan Roth rollover is a distribution from a recipient’s eligible qualified plan
account, other than an account that holds designated Roth contributions, that the
recipient rolls over to his designated Roth account in the same plan.
A designated Roth account is a separate account in a 401(k), 403(b) or, after 2010, a
governmental 457(b) plan that holds designated Roth contributions.
The rationale for this is that distributions from a Roth become tax free
The “price” of the rollover is that the amount rolled over is subject to immediate tax
Box 11 – Designated Roth
Account


This is the first year of the five year period
referred to in Box 11.
It is the first year the designated Roth
account was first established by the
recipient.
THANK YOU!
Robert J. Kiggins
Counselor-At-Law
McCarthy Fingar LLP
11 Martine Avenue
White Plains, NY 10606
Tel (914) 946-3700 Ext. 324
E-mail: [email protected]

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