Form 1099 - Freight Broker

[JohnH]

Client is a freight broker. He matches up independent truck drivers with companies needing single freight loads hauled from point to point.  He collects from the customer and forwards the payment (minus his commission) to the truck owner/operator. He has always been diligent about obtaining W-9 forms and sending 1099-misc to all non-incorporated owner/operators.  He sends about 200+ forms 1099-misc each year.

Some freight companies and brokers do not send 1099-misc to any owner/operators. They base their reasoning on the 1099 instructions, which do exclude "freight" from the requirements.  Client has asked me to help him decide whether to continue his practice or to adopt the practice of the companies which do not send 1099-misc to anyone. 

I think failing to send 1099's in this situation is highly risky. It is possible that IRS has a very restrictive definition of who can avoid sending 1099's under the "freight" exclusion, although I've been unable to find any guidance from IRS. The potential penalties are just too huge. But I'm wondering if others have encountered this situation and how you resolved it. 

Edited October 30, 2015 by JohnH

[Abby Normal]

This looks helpful.

[JohnH]

Wow! 

I'd say "helpful" is an understatement. 

Thanks very much for that link.

[jklcpa]

Yep, that memorandum jmdavis linked to is excellent.

In addition to that but nothing official, here's a blurb from a group called Transportation Intermediaries Association where the third paragraph says that the type of freight might also make a difference in deciding whether reporting is required, where household goods are not classified as freight.

This one from the IRS procedural manual for 1099 reporting, it is credit card payment reporting, but the table at .03 on page 5-6 shows that MCC 4214 motor freight carriers falls under 1.6041-3( c), which you probably already found.

This has a broken link but gives food for thought about using 1099s as evidence that the payments are to independent haulers and not employees.

[JohnH]

Judy:  Thanks also for those links.  One of them I already had, but the other two were new to me.  I'm not comfortable making a recommendation to the client, simply because I know IRS has an agenda and they often interpret their own rules to suit their objectives.  No way I'm going to be in the middle of a disagreement over a couple of hundred unfiled 1099 forms.  For now, I'm telling the client I can't recommend not filing the 1099's,even in light of the information we have on hand,  but they are free to make whatever decision they wish.

Edited November 2, 2015 by JohnH

[kcjenkins]

And put that advice in writing, even if it's just an email.  Just to CYA.  Clients can get VERY forgetful, if they make a choice that comes back to bite them.