Reporting Payments to other Attorneys – Yes you must do it, says the IRS!
The deadline to furnish 1099’s to most recipients is the end of January…so the clock is ticking.
The IRS is paying a lot of attention now towards matching income. They match the income reported to them on 1099’s, W-2’s, Brokerage Statements, K-1’s, etc. to Social Security Numbers…and then to the tax returns.
Failing to report income paid out for services of more than $600 on Form 1099 every year will give you nothing but a heap of trouble from the IRS. I believe there will be a dedicated review of 1099's in the future in every IRS business audit. They even changed the original Form 1099 MISC to accommodate the newly created Form 1099-NEC for Non-Employee Compensation.
When it comes to reporting payments made for legal services, whether to an individual or a firm, the IRS is very clear on this…you have to…even if it’s a corporation. Normally, the IRS allows you to withhold Form 1099 for business taxes as a corporation, however, legal services fall into a bucket all their own.
Report payments to an Attorney in excess of $600 on 1099 MISC, Box 10
Form 1099-MISC is now used to report the following income:
At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
At least $600 in:
Prizes and awards.
Other income payments.
Medical and health care payments.
Crop insurance proceeds.
Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish.
Generally, the cash paid from a notional principal contract to an individual, partnership, or estate.
Payments to an attorney.
Any fishing boat proceeds.
Lawyers must issue Form 1099 MISC for gross proceeds paid to attorneys. Do not file these in Box 1 of Form 1099-NEC.
These forms are due to the recipient by the end of the month.