Why did I get this 1099?

J

JohnnyM

2,500+ Posts
I am a self-employed attorney and part of my business in closing commercial loans. I represent the lender in the transactions. As part of the closings, the borrowers pay me all the closing costs, which I distribute from my trust account to the varying parties (part of them of course being my fees).

Well, I have received two 1099s from borrowers who show "Nonemployee Compensation" in the amount of the closing costs being paid to me. While I did in fact receive these monies, I am confused as to why they are 1099'ing me.

Can I simply include the funds in my normal revenue/expenditure report that I use to come up with my business income for the year, or do I now have to treat these differently because I got 1099s?

I did this in 2006 as well but no borrowers 1099'd me that year. I have a feeling they should not have sent me a 1099, and if that's the case, what do I do then?

Thanks.
 
Thanks. But it wasn't really attorney fees. It was closing costs, with only a portion being for attorney fees...but still it wasn't "attorney fees" in the sense that I wasn't their attorney. I don't really know, but I can't imagine that every business sends a 1099 to the law office listed on their HUD-1 from a real estate transaction. Nor do they send a 1099 to the title company, I assume. Or am I wrong there?

I'm actually more concerned with what I do, since I only actually kept a portion of the money on the 1099. The other portions were paid out of my trust account for charges on the settlement statement.
 
hmmm. so to put some probably way off base numbers to this, you (your business) received funds from a client in the amount of 20K. from that amount, you keep $4K as an attorney fee and distribute the balance to parties in the transaction that are owed, such as inspections, title, insurance, so forth. but your client sent you a 1099 for 20K instead of 4K? is that correct?

i don't see how that can be right, unless it is up to you to file your taxes in such a way to show the 16K was not income to you in any way. but **** if i know the tax code.

as an aside, why can we send our attorneys 1099 for their fees? can i 1099 my auto mechanic for his fees? can i 1099 my groceries and gasoline and utilities as nonemployee compensation? after all, i compensated them and they are not my employees. and who is to say that they are reporting their income correctly unless all of their clients are 1099ing them?

looking forward to reading the correct answer to your issue, johnnym. even if i can't understand it.
 
Actually as long as the gross receipts on your Schedule C (I'm assuming you're a sole proprietor here) equals or exceeds the total of the 1099s you receive, you'll be OK. That's what the IRS is going to be looking for. There is no requirement to treat the 1099 income differently from the non-1099 income.
 
Yes, I think a business is required to send 1099s to subcontractors if it does over a certain amount of business with another firm or person. Instead of a W-2, you get a 1099. This establishes a proper paper trail for that money in case you are ever audited.
If you properly claim the income, and if part of it is passed on to another party, that should be part of your accounting, then you should be doing everything correctly per IRS.
If you don't send out 1099 forms to your subcontractors, there may be a penalty or fine for failing to file the forms. I need to check into this myself. My shop uses a wrecker service regularly, and may be required to file this form.
I think the 1099 just means that you got income from which taxes were not withheld, and you need to make sure it is accounted for and declared as part of your income.
 
mads - you spelled it out correctly.

ladyhorn - thanks for the info, that answers my question. my gross receipts will in fact include these 1099s, i just wanted to make sure i didn't have to account for them elsewhere.

thanks!
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