1099 FORM

[TAXMAN]

If we pay P&I for a client are we required to issue a 1099, one for the interest and one for the penalty amount?

[Lee B]

My knee jerk response was to say no, but since you are engaged in a trade or business the standard reporting rules for 1099 Misc apply. 

 

[BulldogTom]

I don't think so, as you never borrowed anything from them.   I would consider it a refund of prep fees and not send a 1099 at all....unless you are pissed at the client and want to mess with them as they go out the door.

JMHO.

Tom
Longview, TX

[BrewOne]

I'm trying to remember what Block did when they had payouts from their "Peace of Mind" guarantee.  I'm certain they issued a 1099 if payments were part of the client's tax liability.  But not sure if they did when it was just penalties and interest.  The former constitutes income but the latter doesn't seem like it has the same characteristics.

[Abby Normal]

I'd say no, because you're just making them whole for the penalties and interest they paid/will pay, so it's not income to them.

[TAXMAN]

Thank you for the responses.

[Lee B]

19 hours ago, Abby Normal said:

.  .  .  . so it's not income to them.

I don't recall that being a  determinative factor listed in the 1099 Misc Instructions?

[Gail in Virginia]

If you were going to report it on a 1099MISC, which box would you use?  I think what it is closest to is an account reimbursable for an employee, although it is not exactly that since they are not an employee.  But if you are reimbursing the exact amount of the expense or less, I would not think it would qualify as income and would therefore not be reportable on a 1099MISC.  I would retain a copy of the bill or other calculation of interest and penalty with the payment information to explain why you did not report it as income.  I could be wrong too - that has been known to happen.  

[Lion EA]

I too remember Block's POM paying clients with the philosophy taught to us to explain to clients that when HRB pays an obligation of a client that HRB issues Form 1099-MISC. I wasn't involved in the 1099 issuance, so don't remember if the 1099 included ALL payments by HRB to include tax, interest, and penalty.

[Lee B]

Other than Box 3 being called "Other Income", the instructions for filing a 1099 Misc don't really address this question?

Situation Normal   -  Confused!

[Catherine]

The few times I've done that, I've treated the payment of P&I as a refund of prep fees. Plus I give a discount on the next year's return (if I want the client back).

[Terry D EA]

I gotta go with Abb's response. It is true, you are just making them whole so no income. However, in the HRB replies, the fact that Block paid the tax is a benefit to the client so it should be income as it doesn't have the character of a reimbursement.