LLCs and 1099s

[SunTaxMan]

I know Corporations are exempt from having to be sent a 1099-Misc in the course of business.

My uncertainty is about LLCs.

I assume a business that is a SMLLC, filing a schedule C, does not need to be sent a 1099. Correct?

What about LLC filing as an S-Corp - which is my current situation?

While we are on the subject, what about LLC, filing as a Partnership?

1099 instructions don't address this aspect and I could not find anyting in message archives, even though I suspect this subject has been beat to death in the past.

Thanks,

[Margaret CPA in OH]

From my research, LLC's are not corporations, they are companies so I prepare 1099's for those recipients whether single or multiple member. I look at the W-9. If any of the corp boxes are checked, I don't send. I realize this form is about backup withholding and that a handful of corps still are to receive 1099MISC. I tend to follow the Instructions for Form 109MISC. And I have occasionally sent to corps. I don't think there is a big downside to erring on this reporting, in my opinion.

[SunTaxMan]

Margaret,

But...one of the boxes on the new W-9 (I looked at current and prior W-9, revision dates back as far as December 2007)) is "Limited liability company. Enter the tax classification (C=C Corporation, S=S Corporation, P=Partnership. and fill in the blank."

[Margaret CPA in OH]

Yes, I see/saw that but it doesn't change my position. If the entity self-designates 'corporation' in whatever guise, no 1099MISC is required. But you don't know if you don't have the W-9. I prepare 1099MISC for all entities (for which I have a W-9) that are not, in any form, a corporation. If an LLC is a sm or partnership, I send it. The newer form jsut acknowledges that an LLC can opt to be taxed for federal purposes as a corporation or, if mm, a partnership. I still think sending one or more that may not technically be needed is better than to not send one and discover, on audit, that the expense was thrown out because no W-9 was on file and/or nor Form 1099MISC was issued. At least in my practice, the time spend pondering this is potentially more than the time it would take to enter the data and send it. And I do not believe there is a penalty for sending one unnecessarily. Your mileage may vary.

[Gail in Virginia]

I agree with Margaret. Most LLC's are either partnerships or single member, so I would tend to send an LLC a 1099 unless I had evidence to the contrary. I feel much safer sending an unnecessary 1099 than in not sending a required 1099 (after all, these companies report all of their income regardless of whether or not they receive a 1099).

[SunTaxMan]

So the consenus here is that there is no correct answer - no definitive resolution to the question. The LLC is still enough of a "hybrid" to mean we can "send" or "not send;" that IRS has made no clear guidance. But, with the increased emphasis on the "send" in the regulations and the increased penalties for not sending, it would seem wise to "send" rather than "not send."

Let me share my thoughts (conclusions) from both perspectives with regard to the LLC:

(1) the business owner who is faced with whether to send or not send to the LLC vendor/contractor. Request a W-9 and send a 1099 to those who use an "S" or "P" as the clarifier of the LLC "tax classification" - no 1099 to the "C" classification - and if the form is returned incomplete (no descriptive letter on the blank line), or not returned at all, then "send" rather than "not send" - to err on the safe side. and...

(2) the business owner who is faced with the decision to encourage "send" or "not send" when asked "Are you incorporated?" the appropriate answer ( my recommendation to the LLC who is my client) is to say simply, "IRS has not clarified their own regulations. So let me send you a W-9 and you can make your own decision." This lets the recipient of the W-9 make their own decision.

[Lion EA]

The LLC is not a federal entity; it's a state by state thing. At the federal level, an LLC defaults to sole proprietor if one member and to partnership if more than one member -- to either of those entities a biz would send Forms 1099. If the W-9 says the LLC is taxed as a corporation, either S or C, then a biz does not have to send Forms 1099, but it can. There are other subsets, such as attorneys and healthcare providers, but that wasn't the question on this thread. And, a biz can always send Forms 1099 to all of its consultants if it chooses.

[Jack from Ohio]

When in doubt, send them out!

[Randall]

I go with Lion. LLCs get a 1099. But if electing C or S Corporation tax status, no. I treat them as corporations for tax purposes. Isn't the 1099 for tax purposes? The new W-9 should be your support. The IRS should probably clarify this since this question has come up often.

[Former IRS employee]

It is a best practice to always collect Form W-9 from your vendors before making payments.  This will ensure you have all the information you need from them when preparing your 1099s at the end of the year.  Once you receive the W-9 back from the vendor/payee, if they have checked the C Corporation Box, the S Corporation Box or the Limited Liability Company Box with a “C” or “S” noted, you are not required to prepare a 1099 and send to them.   For vendors/payees who have marked as their tax classification: Individual/sole proprietor, Partnership, Trust/ Estate or Limited liability company  with a “P” marked or Other, then you are required to send a 1099 to them.  The only exception is all payments to attorneys should be reported on a 1099-MISC as mentioned above.   You should retain indefinitely the Form W-9 to support your filing or lack of filing a 1099.  If you are unable to get the EIN of your vendor, the IRS requires you to withhold 25% from any payments you make to that company or person.  This is referred to as backup withholding.

[DANRVAN]

On ‎02‎/‎17‎/‎2012 at 7:32 PM, SunTaxMan said:

So the consenus here is that there is no correct answer - no definitive resolution to the question. The LLC is still enough of a "hybrid" to mean we can "send" or "not

 LLC's are a creation of state law and have nothing to do with income tax status.  For tax purposes an entity is either a sole proprietor, partnership or corporation.

[jklcpa]

3 hours ago, Former IRS employee said:

If you are unable to get the EIN of your vendor, the IRS requires you to withhold 25% from any payments you make to that company or person.  This is referred to as backup withholding.

 

Backup withholding is supposed to be at 28%.

 

In case anyone didn't notice, this topic that was revived is five years old.

[WITAXLADY]

and healthcare providers include vets!

Have an audit that says no W-9 or the info of! no deduction - even if under $600,