Insurance Disbursment

Let's assume the IRS code does not require you to issue a W-9 to your subcontractors, perhaps because you can show this is a one-time occurrence to your personal property.

And let's assume the subs are honest, law-abiding people who have nothing to hide about their income.

Then the additional work to collect their W-9s is trivial and you would not even be asking. A sub receiving their W-9 and

But if either assumption is not correct, I would not want to prepare your return or your sub's return.

I find your post confusing....

I assume that you filed a claim with your insurance company for the damages to your home. Additionally, after disputing the amount, the insurance company agreed to up the amount of the claim. I assume the insurance company settled the claim with you and you went ahead to have the repairs made.

Would you please explain how your lender is involved in all of this other than you having to provide evidence to them that repairs were made to the property in order to protect their loan.

It's not the mortgage companies money, its the insurance companys' money. If any one should issue 1099 it should be the insurance company

That is what I'd like to know.The first check that the insurance isssued was based on the original estimate and was endorse by the mortgage and returned to me no questions asked. It's only after the scope of the damage increased and I told them I was going to be my own GC that they put these other stipulations in and called it a "monitored" claim. The increase was due mostly to the fence and the A/C, which have already been replaced with funds from the intial check plus some of my own funds.I have sent PAID invoices for both and pictures. The only MAJOR thing left is the roof and some other minor things like siding & fascia replacement and paint. They are the lien holder and i understand they want me to repair everything, which I am doing, I just don't understand "their" need for W-9 from my subs before releasing funds. They are also requiring waiver of liens be signed also. I feel this is my job as the GC and theirs is to send me the money as needed to complete my job. But, back to my original question, Is anyone aware of an IRS code that requires mortgage company to report insurance payments to subcontractors to the IRS? Its NOT the mortgage company paying them its the insurance company, they are just the middle man holding up the show.

I think you have some basic misunderstandings of the roles of the various parties here. The insurance company isn't paying the subs, it's the mortgage company. The insurance company settled the claim with the lienholder on the property, the mortgage company. The mortgage company is hiring the subs through you as GC. For whatever reason, the mortgage company doesn't trust you to make the repairs adequately on your own, so they want to know who the subs are. Whether they intend to report the payments to the IRS or not, the W-9 creates a document trail of who received payment for the work and who will be ultimately responsible if the work is not up to snuff.

An alternative position the mortgage company could take would be to require a W-9 from you and they could report the disbursements they make to you as your income, leaving you to report the sub payments to the IRS or pay tax on the amounts.

Ira Smilovitz, EA

Lenders are secured only when the property has sufficient value. When there has been major damage, the value of the property drops, and the lender may get nervous. There is probably a provision in the mortgage that allows the lender to make certain that construction is done properly, to protect its own interest. Perhaps they want to see W-9's and/or 1099's as a first step in establishing that the work is actually being done, and being done properly.

Technically, the insurance payment is made jointly to you (as owner) and the lender; both parties must agree on how to disburse the proceeds for repairs. It is not _exactly_ the case that the payment is made to the lender....

I don't see any provision of tax law which _allows_ the lender or the insurance company to request W-9s, as they are not filing any tax documents requiring the information. You (as GC) should file 1099s for payments to the subs, so you should have the tax ID information; and the lender might file a 1099 for their payment to you (as GC).

This is not to say that the lender might not be entitled to license information for the subs.

My comments on insurance and lenders are not made as an expert; but as someone who has had significant damage paid by insurance. The tax matters, though, seem fairly clear.

In fact, you would need to check with a tax lawyer _before_ providing a tax ID to the lender; you might be guilty of improper release of tax information.

-- Arthur Rubin, CRTP, AFSP, Brea, CA