Client pays $1000 rent each year for a small pasture. He pays the landowner with one check to the wife for $500 and one check to the husband for $500.
Client is convinced this method alleviates his requirement to file a 1099-MISC
Comments?
Sounds pretty foolish. He can order the 1099 and 1096 forms for free from the IRS and fill them out by hand in about two minutes. (Yes, that's allowed for very small numbers of forms.)
If he's renting it to farm it, I'd think that if the IRS ever looked at his taxes they'd wonder where the documentation for the $1000 in rent was.
If he wants to file to file 1099s, he should do so and if caught blame it on an oversight or misunderstanding.
If he does it his way, his method is pretty conclusive evidence of willful failure.
He pays his rent this way because the Land owner requests it. I actually believe what my client is doing is perfectly legal and within the IRS code. However, I am certainly open to learning if there is any authority or precedence that would prove me wrong.
I thought about the fact that my client has no idea how the landowner files his taxes. Maybe the landowner files married filing separately and NEEDS the check written separately.
well, that seems to change everything. Seems ok to me.
Yes, his paying it that way is perfectly legal.
Just because it's legal doesn't mean he doesn't have to provide a
1099. Under IRC ?446, the IRS generally has the power to reallocate income to reflect reality. In this case he makes two checks, but they are both to the owner of the property. Yes, he makes them to two separate people, but they are joint venturers and are likely considered one person for this purpose.While it is probably very unlikely that he would ever be caught for not filing 1099's, if he is caught, what is is doing, however legal it may be, does not excuse his failure to file one or two 1099's.
Sure, that's fine. But that's a different issue than the one you asked about.
If it is legal, why would he need an excuse for being legal?
I think he is equating being legal with not needing to issue a
1099. It may be perfectly legal even if he needs to issue a 1099.On 2015-02-05 17:12, mammondee wrote: [...]
What does the W-9 say that he requested from the payee (entity type is one of the questions to be signed by payee under penalty of perjury)? If he hasn't solicited a W-9, that's his first mistake.
Since you (the OP) appear to be a paid preparer for this client, you will have to face your due diligence requirements regarding the questions on the tax return about whether 1099-MISC should have been issued. Since you asked for general comments, mine is, what is the client's objection to just filing a simple info form? It can only help him, while not filing might hurt (having to go through audit adjustments even if he "wins" in the end). I would not want a client who tries to dictate to me whether or not he has a 1099-MISC filing requirement especially if there is no compelling reason to not file it and good reasons to do so.
Regarding the side discussion in this thread about "legal", obviously it is possible to be in compliance with one law while at the same time breaking another.
If each of the two landowners are leasing their interest, he would ask for a W-9 from each. And they would each indicate "individual". I see nothing wrong with this. What if the two landowners do not get along? What if a total rent check was sent to one, and half was not turned over to the other landowner? Sounds like a mess.
I don't think it is up to the renter to figure out what is going on, or what the IRS "might" do in regard to classifying income. If and only if the IRS does something should the renter react accordingly, not to idle speculation on anyone's part.
Your "if" about two landowners each providing a W-9 is just one possibility. We don't have enough information from the OP. All he mentioned was "landowner" (singular). There certainly should be a written agreement making clear who the parties to the rental contract are.
If the husband and wife are co-owners of rental property, it would most likely be a partnership or Qualified Joint Venture and should fill out the W-9 appropriately.
You're right, it's not up to the renter to "figure out what is going on", it is up to the renter to solicit the correct, signed W-9 information and follow it, or if W-9s are not provided, to commence federal (and possibly state) backup withholding when the payment threshold (usually $600) is reached, which also implies filing a 1099-MISC.
I'm not sure where your comment comes from about responding only if the IRS intervenes, and not to "idle speculation" (similar to another comment you made previously in this same thread). A tax practitioner is not allowed to play "audit roulette" by advising that a requirement only be followed if it comes to the IRS' attention.
The request we got was related to the renter, so I also don't understand your comment about "classifying income". This is an expense for the renter, not income. The renter has essentially nothing to lose, and likely something to gain, by filing a 1099-MISC. In fact, I can't see where it would ever be a problem to file a 1099-MISC as long as it was not fraudulent, even if not required.
The request we got was from someone who has the renter as a client, and who asked for open-ended comments. Your responses seem more focused on supporting the renter's pre-conceived notion of what his requirement is, not on how a practitioner might explain to a client what the requirements are, and have a good-faith reliance the requirements are being followed.
That is correct. I was rebutting what seemed to be stated earlier in this thread that what the landowners requested MUST be wrong. It may very well be just fine.
That is up to the landowner to tell.
I never suggested otherwise.
again, I was replying to an earlier post that seemed to indicate the tax practitioner was to decide this matter on his own.
"classifying income" was mentioned in a previous post. Again, tenant's tax practitioner should not come to firm conclusions based on what the IRS "might" decide regarding the landlords' classification of income.
No, that was not my approach at all. I was just countering the posts that seem to take the opposite approach: you must do things a certain way without having all the facts or based on what the IRS MIGHT do, depending on a variety of factors in this specific circumstance.
Bottom line: ask the landlord to provide W-9 documentation and then accept it, unless you have SPECIFIC knowledge that it is incorrect.
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