Tax question: Sending a 1099 to the attorney who wrote your lease?

In 2012, I was in a landowner group headed by a law firm.  We signed a lease written by that law firm and received our bonus.  The law firm charged $250 per acre and it came out of our payment (lease was for $5250/acre and so we received $5000).  We received a 1099 from the Oil/Gas company for the full amount ($5250).  Our accountant then sent a W-9 to the law firm for their tax payer ID.  They never responded.  So my accountant called the law firm today to request the taxpayer ID.  They refused to give it to her.  They were extremely rude and said that they were not required to furnish it and have never furnished it to anyone.

My accountant says that if the amount is over $600, she is required to file a 1099-Misc.  The fees total WAY more than $600.  Here is what the IRS website says:

To report payments to an attorney on Form 1099-MISC, you must obtain the attorney's TIN. You may use Form W-9, Request for Taxpayer Identification Number and Certification, to obtain the attorney's TIN. An attorney is required to promptly supply its TIN whether it is a corporation or other entity, but the attorney is not required to certify its TIN. If the attorney fails to provide its TIN, the attorney may be subject to a penalty under section 6723 and its regulations, and you must backup withhold on the reportable payments.

http://www.irs.gov/instructions/i1099msc/ar02.html

Anyone else having this problem?  My accountant says that she will attach a copy of the settlement sheet to the return to show that we paid these legal fees and therefore can deduct them as business expenses.

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Permalink Reply by David Perotto on February 25, 2013 at 3:24pm

The only thing hurting you is that 1099's must be filed by Jan 31, for the prior year. Other than that, your attorney is skating on thin ice. They better have their records correct, the IRS will dig and ensure they reported their income. Your accountant is on the right track, let her follow through. Please follow up for everyone here.

Dave

Permalink Reply by paleface on February 25, 2013 at 6:37pm

 Who was the check made out to?Wouldn't you right that expense off as legal fee's?

Permalink Reply by Ed C on February 26, 2013 at 12:43am

You only need to send 1099's to individuals.  Payments to corporations do not require 1099's.  I don't know about partnerships and LLC's.  I doubt it.  1099's are simply for payments to individuals

On your return, you declare the full amount of what your receive.   then you deduct the attorney fee as an expense of the sale.  You can also deduct your postage, gas mileage, documents, research, lodging, meetingspace expenses.  etc.  All LEGITIMATE expenses incurred in signing the deal that you can document.

Permalink Reply by Indiana Smith on February 26, 2013 at 2:53am

Ed C,

Thank you for your input regarding the expenses.  You are correct about those being deductable.  However, you need to read page 2 of the IRS's publication titled "Instructions for 1099-Misc".  Here is a link:  http://www.irs.gov/pub/irs-pdf/i1099msc.pdf

Here are the specific quotes:

Payments to attorneys. The term attorney includes a
law firm or other provider of legal services. Attorneys' fees
of $600 or more paid in the course of your trade or
business are reportable in box 7 of Form 1099-MISC.

Payments to corporations for legal services. The
exemption from reporting payments made to corporations
does not apply to payments for legal services. Therefore,
you must report attorneys' fees (in box 7) or gross
proceeds (in box 14) as described earlier to corporations
that provide legal services.

Permalink Reply by Ed C on February 26, 2013 at 3:30am

thanks.  i did not know that   If they refuse--truly refuse to provide.  Just deduct as normal and attach a supporting statement that  X law firm refused to provide TID number.   You are expected to make a reasonable effort to obtain--not make it your life's work.   You simply acknowledge that  you are aware of the requirement, attempted to comply, and the law firm failed to provide info.

Here is a similar strategy--slightly different

http://smallbusiness.chron.com/send-1099-ein-ss-exists-11355.html

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