IRS Proposed Rules on Attorney Reporting
May 28, 2002
May 28, 2002
Real Estate Transaction Exception Provided in IRS Proposed Rules on Attorney Reporting
Ann vom Eigen, ALTA Legislative Regulatory Counsel
The IRS and the Treasury Department have amended and reproposed regulations implementing the Taxpayers Relief Act of 1997 requiring reporting on payments to attorneys. The regulations are expected to become effective no earlier than 2004. [May 17, 2004 REG-126024-01] [pdf]
Major provisions of the proposed regulations affecting the real estate industry include
New Real Estate Exception
There is no reporting required for payments made to an attorney in the attorney?s capacity as the person responsible for closing a real estate transaction.
New De Minimis Threshold
In order to reduce the compliance burden associated with the reporting requirement, the proposed regulations adopt a $600 annual threshold for reporting payments to an attorney.
Corporate Reporting Required
Reporting is required even for attorneys who are incorporated. In the case of a payment by check, the attorney must be named as a sole, joint, or alternative payee for the payment to be reportable.
Payor is Defined
A payor is defined as a person who makes a payment as an obligor, or the obligor?s insurer or guarantor. This definition was adopted in lieu of the definition under IRC section 6041 which only requires payments made on behalf of a third person if the one physically making payment exercises management or oversight in connection with, or has a significant economic interest in, the payment.
Aggregate or Separate Payment Reporting
Payors may file either one Form 1099-MISC that aggregates annual payments or separate Form 1099-MISC for each payment to an attorney.
Backup withholding is required if the attorney does not provide their taxpayer identification number (TIN).