Reg. § 1.6041-1 Return of information as to payments of $600 or more.
(a) General rule
(1) Information returns required
(i) Payments required to be reported Except as otherwise provided in and , every person engaged in a trade or business shall make an information return for each calendar year with respect to payments it makes during the calendar year in the course of its trade or business to another person of fixed or determinable income described in or of this section. For purposes of the regulations under this section, the person described in this is a payor.
(A) Salaries, wages, commissions, fees, and other forms of compensation for services rendered aggregating $600 or more.
(B) Interest (including original issue discount), rents, royalties, annuities, pensions, and other gains, profits, and income aggregating $600 or more.
(ii) Information returns required under other provisions of the Internal Revenue Code The payments described in and of this section shall not include any payments of amounts with respect to which an information return is required by, or may be required under authority of, section (relating to dividends), section (relating to distributions in liquidation), section (relating to patronage dividends), section (relating to brokers' transactions with customers and certain other transactions), sections and (2) (relating to interest), section (relating to royalties), or section or (b) (relating to cancellation of indebtedness). For information returns required under section (relating to payments to attorneys), see special rules in and -5(c)(4). For payment card transactions (as described in ) and third party network transactions (as defined in ) required to be reported on information returns required under section (relating to payment card and third party network transactions), see special rules in .
(iii) Information returns required under section on or after January 1, 2007. For payments made on or after January 1, 2007 to which section (relating to payments to attorneys) applies, the following rules apply. Not withstanding the provisions of of this section, payments to an attorney that are described in of this section but which otherwise would be reportable under section are reported under section and this section and not section . This exception applies only if the payments are reportable with respect to the same payee under both sections. Thus, a person who, in the course of a trade or business, pays $600 of taxable damages to a claimant by paying that amount to the claimant's attorney is required to file an information return under section with respect to the claimant, as well as another information return under section with respect to the claimant's attorney. For provisions relating to information reporting for payments to attorneys, see .
(iv) Information returns required under section 6050W for calendar years beginning after December 31, 2010 For payments made by payment card (as defined in ) or through a third party payment network (as defined in ) after December 31, 2010, that are required to be reported on an information return under section (relating to payment card and third party network transactions), the following rule applies. Transactions that are described in of this section that otherwise would be subject to reporting under both sections and are reported under section and not section . For provisions relating to information reporting for payment card and third party network transactions, see . Solely for purposes of this paragraph, the de minimis threshold for third party network transactions in is disregarded in determining whether the transaction is subject to reporting under section .
(v) Examples The provisions of of this section are illustrated by the following examples:
Example 1. Restaurant owner A, in the course of business, pays $600 of fixed or determinable income to B, a repairman, by credit card. B is one of a network of unrelated persons that has agreed to accept A's credit card as payment under an agreement that provides standards and mechanisms for settling the transactions between a merchant acquiring bank and the persons who accept the cards. Merchant acquiring bank Y is responsible for making the payment to B. Under of this section, A, as payor, is not required to file an information return under section with respect to the transaction because Y, as the payment settlement entity for the payment card transaction, is required to file an information return under section .
Example 2. Restaurant owner A, in the course of business, pays $600 of fixed or determinable income to B, a repairman, through a third party payment network. B is one of a substantial number of persons who have established accounts with Y, a third party settlement organization that provides standards and mechanisms for settling the transactions and guarantees payments to those persons for goods or services purchased through the network. Y is responsible for making the payment to B. Under of this section, A, as payor, is not required to file an information return under section with respect to the transaction because the transaction is a third party network transaction that is subject to reporting under section . Solely for purposes of determining whether A is eligible for relief from reporting under section , the de minimis threshold for third party network transactions in is disregarded.
(2) Prescribed form The return required by subparagraph (1) of this paragraph shall be made on Forms 1096 and 1099 except that
(i) the return with respect to distributions to beneficiaries of a trust or of an estate shall be made on Form 1041, and
(ii) the return with respect to certain payments of compensation to an employee by his employer shall be made on Forms W-3 and W-2 under the provisions of (relating to return of information as to payments to employees). Where Form 1099 is required to be filed under this section, a separate Form 1099 shall be furnished for each person to whom payments described in subdivision (i), (ii), or
(iii) of subparagraph (1) of this paragraph are made. For time and place for filing Forms 1096 and 1099, see . For the requirement to submit the information required by Form 1099 on magnetic media for payments after December 31, 1983, see section and (Procedure and Administration Regulations).
(b) Persons engaged in trade or business
(1) In general The term “all persons engaged in a trade or business”, as used in section , includes not only those so engaged for gain or profit, but also organizations the activities of which are not for the purpose of gain or profit. Thus, the term includes the organizations referred to in section , , and and in of this section. On the other hand, section applies only to payments in the course of trade or business; hence it does not apply to an amount paid by the proprietor of a business to a physician for medical services rendered by the physician to the proprietor's child.
(2) Special rule for REMICs For purposes of chapter 1 subtitle F, chapter 61A, part IIIB, the terms “all persons engaged in a trade or business” and “any service-recipient engaged in a trade or business” includes a real estate mortgage investment conduit or REMIC (as defined in section ).
(c) Fixed or determinable income Income is fixed when it is to be paid in amounts definitely predetermined. Income is determinable whenever there is a basis of calculation by which the amount to be paid may be ascertained. The income need not be paid annually or at regular intervals. The fact that the payments may be increased or decreased in accordance with the happening of an event does not for purposes of this section make the payments any the less determinable. A payment made jointly to two or more payees may be fixed and determinable income to one payee even though the payment is not fixed and determinable income to another payee. For example, property insurance proceeds paid jointly to the owner of damaged property and to a contractor that repairs the property may be fixed and determinable income to the contractor but not fixed and determinable income to the owner, and should be reported to the contractor. A salesman working by the month for a commission on sales which is paid or credited monthly receives determinable income.
(d) Payments specifically included
(1) In general Amounts paid in respect of life insurance, endowment, or annuity contracts are required to be reported in returns of information under this section—
(i) Unless the payment is made in respect of a life insurance or endowment contract by reason of the death of the insured and is not required to be reported by ,
(ii) Unless the payment is made by reason of the surrender prior to maturity or lapse of a policy, other than a policy which was purchased (a) by a trust described in section which is exempt from tax under section , (b) as part of a plan described in section , or (c) by an employer described in section ,
(iii) Unless the payment is interest as defined in and is made after December 31, 1962,
(iv) Unless the payment is a payment with respect to which a return is required by , relating to employee retirement plans covering owner-employees,
(v) Unless the payment is payment with respect to which a return is required by , relating to payment of wages in the form of group-term life insurance.
(2) Professional fees Fees for professional services paid to attorneys, physicians, and members of other professions are required to be reported in returns of information if paid by persons engaged in a trade or business and paid in the course of such trade or business.
(3) Prizes and awards Amounts paid as prizes and awards that are required to be included in gross income under section and when paid in the course of a trade or business are required to be reported in returns of information under this section.
(4) Disability payments Amounts paid as disability payments under section are required to be reported in returns of information under this section.
(5) Notional principal contracts Except as provided in and of this section, amounts paid after December 31, 2000, with respect to notional principal contracts referred to in or to persons who are not described in are required to be reported in returns of information under this section. The amount required to be reported under this is limited to the amount of cash paid from the notional principal contract as described in . A non-periodic payment is reportable for the year in which an actual payment is made. Any amount of interest determined under the provisions of (dealing with interest in the case of a significant non-periodic payment) is reportable under this and not under section (see ). See for reporting exceptions regarding payments to foreign persons. See, however, for reporting amounts described under this that are paid to foreign persons. The provisions of shall apply for determining whether a payment with respect to a notional principal contract is made to a foreign person. See for a definition of payor. For purposes of this , a payor includes a middleman defined in .
(i) An amount paid with respect to a notional principal contract is not required to be reported if the amount is paid by a non-U.S. payor or a non-U.S. middleman and is paid and received outside the United States (as defined in ).
(ii) An amount paid with respect to a notional principal contract is not required to be reported if the amount is paid by a payor that has no actual knowledge that the payee is a U.S. person and is paid and received outside the United States (as defined in ), and the payor is—
(A) A U.S. payor or U.S. middleman that is not a U.S. person (such as a controlled foreign corporation defined in section or certain foreign corporations or foreign partnerships engaged in a U.S. trade or business); or
(B) A foreign branch of a U.S. bank. See for a definition of a U.S. payor, a U.S. middleman, a non-U.S. payor, and a non-U.S. middleman.
(e) Payment made on behalf of another person
(1) In general A person that makes a payment in the course of its trade or business on behalf of another person is the payor that must make a return of information under this section with respect to that payment if the payment is described in of this section and, under all the facts and circumstances, that person—
(i) Performs management or oversight functions in connection with the payment (this would exclude, for example, a person who performs mere administrative or ministerial functions such as writing checks at another's direction); or
(ii) Has a significant economic interest in the payment (i.e., an economic interest that would be compromised if the payment were not made, such as by creation of a mechanic's lien on property to which the payment relates, or a loss of collateral).
(2) Determination of payor obligated to report If two or more persons meet the requirements for making a return of information with respect to a payment, as set forth in of this section, the person obligated to report the payment is the person closest in the chain to the payee, unless the parties agree in writing that one of the other parties meeting the requirements set forth in of this section will report the payment.
(3) Special rule for payment by employee to employer Notwithstanding the provisions of of this section, an employee acting in the course of his employment who makes a payment to his employer on behalf of another person is not required to make a return of information with respect to that payment.
(4) Optional method to report A person that makes a payment on behalf of another person but is not required to make an information return under of this section may elect to do so pursuant to the procedures established by the Commissioner. See, e.g., Rev. Proc. 84-33 (1984-1 C.B. 502) (optional method for a paying agent to report and deposit amounts withheld for payors under the statutory provisions of backup withholding) (see ).
(5) Examples The provisions of this are illustrated by the following examples:
Example 1. Bank B provides financing to C, a real estate developer, for a construction project. B makes disbursements from the account for labor, materials, services, and other expenses related to the construction project. In connection with the payments, B performs the following functions: approves payments to the general contractor or subcontractors; ensures that loan proceeds are properly applied and that all approved bills are properly paid to avoid mechanics' or materialmen's liens; conducts site inspections to determine whether work has been completed (but does not check the quality of the work). B is performing management or oversight functions in connection with the payments and is subject to the information reporting requirements of section with respect to payments.
Example 2. Mortgage company D holds a mortgage on business property owned by E. When the property is damaged by a storm, E's insurance company issues a check payable to both D and E in settlement of E's claim. Pursuant to the contract between D and E, D holds the insurance proceeds in an escrow account and makes disbursements, according to E's instructions, to contractors and subcontractors performing repairs on the property. D is not performing management or oversight functions, but D has a significant economic interest in the payments because the purpose of the arrangement is to ensure that property on which D holds a mortgage is repaired or replaced. D is subject to the information reporting requirements of section with respect to the payments to contractors.
Example 3. Settlement agent F provides real estate closing services to real estate brokers and agents. F deposits money received from the buyer or lender in an escrow account and makes payments from the account to real estate agents or brokers, appraisers, land surveyors, building inspectors, or similar service providers according to the provisions of the real estate contract and written instructions from the lender. F may also make disbursements pursuant to oral instructions of the seller or purchaser at closing. F is not performing management or oversight functions and does not have a significant economic interest in the payments, and is not subject to the information reporting requirements of section . For the rules relating to F's obligation to report the gross proceeds of the sale, see section and .
Example 4. Assume the same facts as in Example 3. In addition, the seller instructs F to hire a contractor to perform repairs on the property. F selects the contractor, negotiates the cost, monitors the progress of the project, and inspects the work to ensure it complies with the contract. With respect to the payments to the contractor, F is performing management or oversight functions and is subject to the information reporting requirements of section .
Example 5. G is a rental agent who manages certain rental property on behalf of property owner H. G finds tenants, arranges leases, collects rent, responds to tenant inquiries regarding maintenance, and hires and makes payments to repairmen. G subtracts her commission and any maintenance payments from rental payments and remits the remainder to H. With respect to payments to repairmen, G is performing management or oversight functions and is subject to the information reporting requirements of section . With respect to the payment of rent to H, G is subject to the information reporting requirements of section regardless of whether she performs management or oversight functions or has a significant economic interest in the payment. See for rules relating to rental agents. See to determine the amount that G should report to H as rent.
Example 6. Literary agent J receives a payment from publisher L of fees earned by J's client, author K. J deposits the payment into a bank account in J's name. From time to time and as directed by K, J makes payments from these funds to attorneys, managers, and other third parties for services rendered to K. After subtracting J's commission, J pays K the net amount. J does not order or direct the provision of services by the third parties to K, and J exercises no discretion in making the payments to the third parties or to K. J is not performing management or oversight functions and does not have a significant economic interest in the payments and is not subject to the information reporting requirements of section in connection with the payments to K or to the third parties. For the rules relating to L's obligation to report the payment of the fees to K, see and of this section. For the rules relating to K's obligation to report the payment of the commission to J and the payments to the third parties for services, see and of this section.
Example 7. Attorney P deposits into a client trust fund a settlement payment from R, the defendant in a breach of contract action for lost profits in which P represented plaintiff Q. P makes payments from the client trust fund to service providers such as expert witnesses and private investigators for expenses incurred in the litigation. P decides whom to hire, negotiates the amount of payment, and determines that the services have been satisfactorily performed. In the event of a dispute with a service provider, P withholds payment until the dispute is settled. With respect to payments to the service providers, P is performing management or oversight functions and is subject to the information reporting requirements of section .
Example 8. Assume the same facts as in Example 7. In addition, assume that after paying the service providers and deducting his legal fee, P pays Q the remaining funds that P had received from the settlement with R. With respect to the payment to Q, P is not performing management or oversight functions, does not have a significant economic interest in the payment, and is not subject to the information reporting requirements of section . For the rules relating to R's obligation to report the payment of the settlement proceeds to P, see section and the regulations thereunder. For the rules relating to R's obligation to report the payment of the settlement proceeds to Q, see and of this section. For the rules relating to Q's obligation to report the payment of attorney fees to P, see and of this section.
Example 9. Medical insurer S operates as the administrator of a health care program under a contract with a state. S makes payments of government funds to health care providers who provide care to eligible patients. S receives and reviews claims submitted by patients or health care providers, determines if the claims meet all the requirements of the program (e.g., that the care is authorized and that the patients are eligible beneficiaries), and determines the amount of payment. S is performing management or oversight functions and is subject to the information reporting requirements of section with respect to the payments.
Example 10. Race track employee T holds deposits made by horse owner U in a special escrow account in U's name. U enters into a contract with jockey V to ride U's horse in a race at the track. As directed by U, T pays V the fee for riding U's horse from U's escrow account. T is not performing management or oversight functions, does not have a significant economic interest in the payment, and is not subject to the information reporting requirements of section . For the rules relating to U's obligation to report the payment of the fee to V, see of this section.
Example 11. X is a certified public accountant employed by Firm Y, and is not a partner. Client Z pays X directly for accounting services. X remits the amount received to Y, as required by the terms of his employment. X does not have any reporting obligation with respect to the payment to Y. For the rules relating to Z's obligation to report the payment to Y for services, see and of this section.
Example 12. Bank contracts with Title Company with respect to the disbursement of funds on a construction loan. Pursuant to their arrangement, the contractor sends draw requests to Title Company, which inspects the work, verifies the amount requested, and then sends the draw request to Bank with supporting documents. Bank pays Title Company the amount of the draw request, and Title Company insures Bank against any loss if it cannot obtain the necessary lien waivers. Bank has a significant economic interest in the payment as a mortgagee, and Title Company exercises management or oversight over the payment. Since Title Company is closest in the chain to the contractor, Title Company should report the payment, unless the parties agree in writing that Bank will report the payment.
(f) Amount to be reported when fees, expenses or commissions are deducted
(1) In general The amount to be reported as paid to a payee is the amount includible in the gross income of the payee (which in many cases will be the gross amount of the payment or payments before fees, commissions, expenses, or other amounts owed by the payee to another person have been deducted), whether the payment is made jointly or separately to the payee and another person. The Commissioner may, by guidance published in the Internal Revenue Bulletin, illustrate the circumstances under which the gross amount or less than the gross amount may be reported.
(2) Examples. The provisions of this are illustrated by the following examples:
Example 1. Attorney P represents client Q in a breach of contract action for lost profits against defendant R. R settles the case for $100,000 damages and $40,000 for attorney fees. Under applicable law, the full $140,000 is includible in Q's gross taxable income. R issues a check payable to P and Q in the amount of $140,000. R is required to make an information return reporting a payment to Q in the amount of $140,000. For the rules with respect to R's obligation to report the payment to P, see section and the regulations thereunder.
Example 2. Assume the same facts as in Example 1, except that R issues a check to Q for $100,000 and a separate check to P for $40,000. R is required to make an information return reporting a payment to Q in the amount of $140,000. For the rules with respect to R's obligation to report the payment to P, see section and the regulations thereunder.
(g) Payment made in medium other than cash If any payment required to be reported on Form 1099 is made in property other than money, the fair market value of the property at the time of payment is the amount to be included on such form.
(h) When payment deemed made For purposes of a return of information, an amount is deemed to have been paid when it is credited or set apart to a person without any substantial limitation or restriction as to the time or manner of payment or condition upon which payment is to be made, and is made available to him so that it may be drawn at any time, and its receipt brought within his own control and disposition.
(i) Payments made by the United States or a State Information returns on:
(1) Forms 1096 and 1099 and
(2) Forms W-3 and W-2 (when made under the provisions of )
of payments made by the United States or a State, or political subdivision thereof, or the District of Columbia, or any agency or instrumentality of any one or more of the foregoing, shall be made by the officer or employee of the United States, or of such State, or political subdivision, or of the District of Columbia, or of such agency or instrumentality, as the case may be, having control of such payments or by the officer or employee appropriately designated to make such returns.
(j) Effective/applicability date This section applies to payments made on or after January 6, 2017. (For payments made after June 30, 2014, and before January 6, 2017, see this section as in effect and contained in 26 CFR part 1, as revised April 1, 2016. For payments made after December 31, 2010, and before July 1, 2014, see this section as in effect and contained in 26 CFR part 1, as revised April 1, 2013.)
Editorial Note
Editorial Note:
For Federal Register citations affecting , see the List of CFR Sections Affected, which appears in the Finding Aids section of the printed volume and at www.govinfo.gov.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960]