Form 1099 – Overview Robert J. Kiggins September 27, 2011

Form 1099 – Overview

Robert J. KigginsSeptember 27, 2011

What We Will Cover

IRS Information Reporting Procedures Purposes of Form 1099 Reporting Due Dates for Form 1099 Series Penalties for Noncompliance Consequences of Errors with Inaccurate

Names and TINS

IRS Information Reporting Procedures

What is an Information Return? An information return is a tax document businesses are

required to file to report certain business transactions to the Internal Revenue Service (IRS).

The requirement to file Information Returns is mandated by the Internal Revenue Service and associated regulations.

Who must file Information Returns? Any person, including a corporation, partnership,

individual, estate, and trust. Who make reportable transactions during the calendar

year Must file information returns to report those transactions

to the IRS.

IRS Information Reporting Procedures (Cont’d)

Persons required to file Information Returns to the IRS must also furnish statements to the recipients (Payees) of the income. In fact the order is

First furnish statements to the recipients. Second file the information reports to the IRS

Filers who have 250 or more returns must file these returns with the IRS electronically. More on electronic filing this PM after lunch

Purposes of Form 1099 Reporting

IRS Form 1099 has many purposes for reporting income and there is more than one Form 1099. 1099-A is used to report all amounts

owed which are the result of the recovery or abandonment of property that is security for a debt for which you are the creditor.

1099-B is used to report all amounts from brokerage and barter exchange transactions.

Purposes of Form 1099 Reporting – Cont’d

1099-DIV is used to report all dividends and capital gains of $10.00 or more.

1099-G is used for government payments. $10.00 or more for unemployment

compensation and state and local income tax refunds.

$600.00 or more for taxable grants and discharge of indebtedness in bankruptcy.

1099-INT is used for reporting all interest income

in excess of $10.00.

Purposes of Form 1099 Reporting – Cont’d

1099-MISC is used to report miscellaneous income.

Royalty payments exceeding $10.00. Rent, prizes or awards in excess of $600.00. Payments to any non-employee of a business, i.e. contract

labor, subcontractors, directors in excess of $600.00. "Golden Parachute" payments made in excess of $600.00

1099-R is used to report all amounts paid from retirement, profit sharing, IRAs, SEPs or 401(K) and 403(C) programs.

1099-S is used to report all gross receipts from the sale or exchange of real estate

Due Dates (General Rules)

As a General Rule, Form 1099’s must Be Sent to the Payees by January 31 Consult Handout Materials for Specifics

Manually Filed Form 1099’s Must be Sent to the IRS by February 28

Electronically Filed Form 1099’s Must be Transmitted to the IRS by March 31

Penalties - Failure To Furnish Correct Payee Statements (Section 6722)

If you fail to provide correct payee statements and you cannot show reasonable cause, you may be subject to a penalty.

The penalty applies if you fail to provide the statement by

January 31 (February 15 for Forms 1099-B, 1099-S, and 1099-MISC (boxes 8 and 14 only)),

Penalties - Failure To Furnish Correct

Payee Statements (Section 6722) - you fail to include all information required to be shown

on the statement, or you include incorrect information on the statement.

"Payee statement" has the same meaning as "statement to recipient”

The amount of the penalty is based on when you furnish the

correct payee statement.


It is a separate penalty, and is applied in the same manner as the penalty for failure to file correct information returns by the due date (Section 6721), which we will describe next.


Exception. An inconsequential error or omission is not considered a failure to include correct information.

An inconsequential error or omission cannot reasonably be expected to prevent or hinder the payee from timely receiving correct information and reporting it on his or her income tax return or from otherwise putting the statement to its intended use.


Errors and omissions that are never inconsequential are those relating to a dollar amount, a significant item in a payee's address, the appropriate form for the information

provided (that is, whether the form is an acceptable substitute for the official IRS form), and

whether the statement was furnished in person or by "statement mailing," when required.


Intentional disregard of payee statement requirements. If any failure to provide a correct payee statement is due to intentional disregard of the requirements to furnish a correct payee statement, the penalty is at least $250 (old minimum was $100) per payee statement with no maximum penalty.

Penalties - Failure To File Correct Information Returns with the IRS by the Due Date (Section

6721)

If you fail to file a correct information return with the IRS by the due date and you cannot show reasonable cause, you may be subject to a penalty.

The penalty applies if you fail to file timely, you fail to include all information required to be

shown on a return, or you include incorrect information on a

return.

Penalties - Failure To File Correct Information Returns with the IRS by the

Due Date (Section 6721) – Cont’d The penalty also applies if

you file on paper when you were required to file electronically,

you report an incorrect TIN or fail to report a TIN, or

you fail to file paper forms that are machine readable.

The amount of the penalty is based on when you file the correct information return.

Penalties - Failure To File Correct Information Returns with the IRS by the Due Date (Section

6721) - Cont’d The penalty is:

$30 (was $15 before Small Business Jobs Act of 2010) per information return if you correctly file within 30 days (by March 30 if the due date is February 28);

maximum penalty $250,000 per year ($75,000 for small businesses, defined below).

$60 (was $30) per information return if you correctly file more than 30 days after the due date but by August 1;

maximum penalty $500,000 per year ($200,000 for small businesses).

Penalties - Failure To File Correct Information Returns with IRS by the Due Date (Section

6721) - Cont’d $100 (was $50) per information return if you

file after August 1 or you do not file required information returns;

maximum penalty $1,500,000 per year ($500,000 for small businesses).

Small businesses—lower maximum penalties. You are a small business if your average annual gross receipts for the 3 most recent tax years (or for the period you were in existence, if shorter) ending before the calendar year in which the information returns were due are $5 million or less.

Remember – this same penalty scheme applies to a failure to report to a payee

Reasonable Cause Penalties Don’t Apply where Reasonable Cause under Treas. Reg.

§ 301.6724-1 Can Be Shown:

Significant mitigating factors + Filer Acting in a Responsible Manner = Reasonable Cause

Significant Mitigation Factors

(1) The fact that prior to the failure the filer was never required to file the particular type of return or furnish the particular type of statement with respect to which the failure occurred, or

(2) The fact that the filer has an established history of complying with the information reporting requirement with respect to which the failure occurred. In determining whether the filer has such an established history, significant consideration is given to—

(i) Whether the filer has incurred any penalty under in prior years for the failure (or under parallel provisions of prior law), and

(ii) If the filer has incurred any such penalty in prior years, the extent of the filer's success in lessening its error rate from year to year.

A filer may treat as a penalty not incurred any penalty that was self-assessed under section 6724(c)(3) and any penalty under section 6676(b) that was self-assessed under section 6676(d), prior to amendment or repeal by the Omnibus Budget Reconciliation Act of 1989.

Reasonable Cause Responsible manner— Acting in a responsible manner generally means— (i) That the filer exercised reasonable care, which is that standard of care that a

reasonably prudent person would use under the circumstances in the course of its business in determining its filing obligations and in handling account information such as account numbers and balances, and

(ii) That the filer undertook significant steps to avoid or mitigate the failure, including, where applicable—

(A) Requesting appropriate extensions of time to file, when practicable, in order to avoid the failure,

(B) Attempting to prevent an impediment or a failure, if it was foreseeable, (C) Acting to remove an impediment or the cause of a failure, once it occurred,

and (D) Rectifying the failure as promptly as possible once the impediment was

removed or the failure was discovered.

Reasonable Cause Events beyond the filer's control. In order to establish reasonable cause

under this standard, the filer must be meet the Responsible manner test set forth above and must show that the failure was due to events beyond the filer's control.

Events which are generally considered beyond the filer's control include but are not limited to—

(i) The unavailability of the relevant business records fire or other casualty that damages or impairs the filer's relevant business records or the

filer's system for processing and filing such record regulatory change that has a direct impact upon data processing and that is made so

close to the time that the return or payee statement is required that, the change cannot be complied with

unavoidable absence (e.g., due to death or serious illness) of the person with the sole responsibility for filing a return or furnishing a payee statement

(ii) An undue economic hardship relating to filing on magnetic media (as described in paragraph (c)(3) of the Reg),

(iii) Certain actions of the Internal Revenue Service failure was due to the filer's reasonable reliance on erroneous written information from

the Internal Revenue Service. Reasonable reliance means that the filer relied in good faith on the information. The filer shall not be considered to have relied in good faith if the Internal Revenue

Service was not aware of all the facts when it provided the information to the filer. In order to substantiate reasonable cause under this paragraph (c)(4), the filer must

provide a copy of the written information provided by the Internal Revenue Service and, if applicable, the filer's written request for the information.

Reasonable Cause (iv) Certain actions of the filer’s agent

The filer exercised reasonable business judgment in contracting with the agent to file timely correct returns or furnish timely correct payee statements with respect to which the failure occurred.

This includes contracting with the agent and providing the proper information sufficiently in advance of the due date of the return or statement to permit timely filing of correct returns or timely furnishing of correct payee statements; and

The agent satisfied the reasonable cause criteria for mitigating circumstances or one of the reasonable cause criteria

(v) Certain actions of the payee or any other person providing necessary information with respect to the return or payee statement (as described in paragraph (c)(6) of the Reg).

(i) That the failure resulted from the failure of the payee, or any other person required to provide information necessary for the filer to comply with the information reporting requirements (“any other person”), to provide information to the filer, or

(ii) That the failure resulted from incorrect information provided by the payee (or any other person) upon which information the filer relied in good faith.

To substantiate reasonable cause the filer must provide documentary evidence upon request of the Internal Revenue Service showing that the failure was attributable to the payee (or any other person).

There are special rules relating to the availability of a waiver where the filer's failure relates to a taxpayer identification number (TIN), and the failure is attributable to actions of the payee described above

Form 1099 MISC

Robert J. Kiggins

Agenda

What is 1099 –Misc Reporting Type of Payments Payments Not Required Reporting Reporting Timeline Accuracy of Vendor Information Form 1099 MISC Line by Line

What is 1099-MISC andWhat does it Mean?

A 1099-Misc is a type of tax form. It is used to report miscellaneous

income For vendors who have been paid a

total of $600 or more In non-employee payments during a

calendar year.

What Type of Payments are Reported on 1099-Misc?

Legal Services Rents Prizes/Awards Medical/Dental Services Guest Speakers/Lectures Performers Child Care Providers Other Services

Payments Not Required to Be Reported on 1099-Misc

Payments for merchandise, telegraphs, telephone, freight, storage

Wages paid to employees (reported on W-2, Wage and Tax Statement)

Business travel allowances /mileage paid to vendors

Payments to non profit organizations and government agencies

Payments to Corporations Exceptions for medical and health care,

and legal – these must be reported

Payments Not Required to Report on 1099-Misc

The Comprehensive 1099 Taxpayer Protection and Replacement of Exchange Subsidy

Overpayments Act of 2011 Repealed the requirement for rental property

owners to issue Form 1099-MISC; Repealed the requirement for any business to

issue Form 1099-MISC for payments of goods or property;

Repealed the requirement for any business to issue Form 1099-MISC for payments made to corporations;

1099-Misc Reporting Timeline

IRS regulation mandates that the Form 1099-Misc is distributed no later than January 31 of the year following payment.

Paper filing is due to IRS by February 28

Electronic file is due to the IRS by March 31.

Why is Accurate Reporting of Vendor Information Critical?

The Payor annually files to the IRS the reportable amounts paid to each vendor during the calendar year.

The legal name and Tax Identification Number (TIN) in any preparation program used MUST match exactly with the legal name and TIN on file with the IRS.

Verify that the vendor information is accurate on the Form W-9 and matches the IRS 147-C letter (letter confirming EIN) OR matches a copy of the Social Security Card.• NOTE: Social Security Number

(SSN) or Employer Identification Number (EIN) MUST always have a 9 digit number

What is the Role of theReporting Company?

What is the Role of theReporting Company?

If a SSN is used, then the Individual/Sole Proprietor box should be Checked on the W-9 form or AP-1 (substitute W-9 form), AND the legal name should be written in the “Name” field and NOT in the “Business name” field.

1099 Misc Line By LineAccount Number

Required if you have multiple accounts for a recipient for whom you are filing more than one information report of the same type E.G. A financial institution filing to a

recipient who has more than one account.

This Field won’t tend to come into play too much on a 1099-Misc

1099 Misc Line By Line2ND TIN not.

You enter “X” in this box if you were notified by the IRS twice within 2 calendar years that the payee provided an incorrect TIN.

If you mark this box the IRS won’t send you any further incorrect TIN notices regarding this account

1099 Misc Line By LineBox 1. Rents

Enter amounts of $600 or more for all types of rents, such as real estate rentals paid for

office space (unless paid to a real estate agent)

machine rentals (for example, renting a bulldozer to level your parking lot), and

pasture rentals (for example, farmers paying for the use of grazing land).

1099 Misc Line By LineBox 1 Rents – Cont’d

If the machine rental is part of a contract that includes both the use of the machine and the operator, the rental should be prorated between the rent of the machine (reported in box

1) and the operator's charge (reported as

nonemployee compensation in box 7). Public housing agencies must report in box

1 rental assistance payments made to owners of housing projects.

1099 Misc Line By LineBox 2 Royalty Payments

Enter gross royalty payments (or similar amounts) of $10 or more.

Report royalties from oil, gas, or other mineral properties before reduction for severance and other taxes that may have been withheld and paid. Do not include surface royalties. They should

be reported in box 1. Do not report oil or gas payments for a

working interest in box 2 report payments for working interests in

box 7.

1099 Misc Line By LineBox 2 Royalties – Cont’d

Do not report timber royalties made under a pay-as-cut contract; report these timber royalties on Form 1099-S, Proceeds From Real Estate Transactions.

Use box 2 to report royalty payments from intangible property such as patents, copyrights, trade names, and trademarks. Report the gross royalties (before

reduction for fees, commissions, or

1099 Misc Line By LineBox 2 Royalty Payments

expenses) paid by a publisher directly to an author or literary agent, unless the agent is a corporation.

The literary agent (whether or not a corporation) that receives the royalty payment on behalf of the author must report the gross amount of royalty payments to the author on Form 1099-MISC

whether or not the publisher reported the payment to the agent on its Form 1099-MISC

1099 Misc Line By LineBox 3. Other Income

Enter other income of $600 or more required to be reported on Form 1099-MISC that is not reportable in one of the other boxes on the form.

PRIZES AND AWARDS Also enter in box 3 prizes and awards

that are not for services performed. Include the fair market value (FMV) of merchandise won on game shows.


If, not later than 60 days after the winner becomes entitled to the prize, the winner can choose the option of

a lump sum or an annuity payable over at least 10 years,

Then the payment of winnings is considered made when actually paid.

If the winner chooses an annuity, file Form 1099-MISC each year to report the annuity paid during that year.


Do not include prizes and awards paid to your employees. Report these on Form W-2. Do not include in box 3 prizes and

awards for services performed by nonemployees, such as an award for the top commission salesperson.

Report them in box 7.


Prizes and awards received in recognition of past accomplishments in religious, charitable, scientific, artistic, educational, literary, or civic fields are not reportable if: The winners are chosen without action

on their part, The winners are not expected to perform

future services, and The payer transfers the prize or award

to a charitable organization or governmental unit under a designation made by the recipient.


Other items required to be reported in box 3

include the following.DAMAGES

Generally, all punitive damages, any damages for nonphysical injuries or sickness, and any other taxable damages are reported in Box 3.

Report punitive damages even if they relate to physical injury or physical sickness.

Generally, report all compensatory damages for nonphysical injuries or sickness, such as employment discrimination or defamation.


However, do not report damages (other than punitive damages):

Received on account of personal physical injuries or physical sickness;

That do not exceed the amount paid for medical care for emotional distress;

Received on account of nonphysical injuries (for example, emotional distress) under a written binding agreement, court decree, or mediation award in effect on or issued by September 13, 1995; or


That are for a replacement of capital, such as damages paid to a buyer by a contractor who failed to complete construction of a building.

Damages received on account of emotional distress, including physical symptoms such as insomnia, headaches, and stomach disorders, are not considered received for a physical injury or physical sickness and are reportable However, damages received on account of

emotional distress due to physical injuries


or physical sickness are not reportable. Also report liquidated damages

received under the Age Discrimination in Employment Act of 1967

Taxable back pay damages may be wages and reportable on Form W-2.


Termination payments to former self-employed insurance salespeople.

These payments are not subject to self-employment tax and are reportable in box 3 (rather than box 7) if all the following apply. The payments are received from an

insurance company because of services performed as an insurance salesperson for the company.


The amount of the payments does not depend at all on length of service or overall earnings from the company (regardless of whether eligibility for payment depends on length of service).

If the termination payments do not meet all these requirements, report them in box 7.


The payments are received after termination of the salesperson's agreement to perform services for the company.

The salesperson did not perform any services for the company after termination and before the end of the year.

The salesperson enters into a covenant not to compete against the company for at least 1 year after the date of termination.

1099 Misc Line By LineBox 4. Income Tax Withheld

Enter backup withholding. For example, persons who have not furnished their TIN to you are subject to withholding at a 28% rate on payments required to be reported in boxes 1, 2 (net of severance taxes), 3, 5 (to the extent paid in cash), 6, 7 (except fish purchases for cash), 8, 10, and 14.

Also enter any income tax withheld from payments to members of Indian tribes from the net revenues of class II or class III gaming activities conducted or licensed by the tribes.

1099 Misc Line By LineBox 5. Fishing Boat Proceeds

Enter the individual's share of all proceeds from the sale of a catch or the FMV of a distribution in kind to each crew member of fishing boats with normally fewer than 10 crew members.

A fishing boat has normally fewer than 10 crew members if the average size of the operating crew was fewer than 10 on trips during the preceding 4 calendar quarters.

In addition, report cash payments of up to $100 per trip that are contingent on a minimum catch and are paid solely for additional duties (such as mate, engineer, or cook) for which additional cash payments are traditional in the industry.

However, do not report on Form 1099-MISC any wages reportable on Form W-2

1099 Misc Line By LineBox 6. Medical and Health Care Payments

Enter payments of $600 or more made in the course of your trade or business to each physician or other supplier or provider of medical or health care services. Include payments made by medical and health

care insurers under health, accident, and sickness insurance programs.

If payment is made to a corporation, list the corporation as the recipient rather than the individual providing the services.


Payments to persons providing health care services often include charges for injections, drugs, dentures, and similar items. In these cases the entire payment is subject to

information reporting. You are not required to report payments to

pharmacies for prescription drugs. The exemption from issuing Form 1099-MISC to a

corporation does not apply to payments for medical or


health care services provided by corporations, including professional corporations.

However, you are not required to report payments made to a tax-exempt hospital or extended care facility or to a hospital or extended care facility owned and

operated by: the United States (or its possessions), a state, the District of Columbia, or any of their political subdivisions, agencies, or

instrumentalities.


Generally, payments made under a flexible spending arrangement (as defined in

section 106(c)(2)) or a health reimbursement arrangement which is

treated as employer-provided coverage under an accident or health plan for purposes of section 106

are exempt from the reporting requirements

1099 Misc Line By LineBox 7. Nonemployee Compensation

Enter nonemployee compensation of $600 or more. Include fees, commissions, prizes and awards for

services performed as a nonemployee, Other forms of compensation for services performed for

your trade or business by an individual who is not your employee,

Fish purchases for cash. Include oil and gas payments for a working interest,

whether or not services are performed. Also include expenses incurred for the use of an

entertainment facility that you treat as compensation to a nonemployee.


What is nonemployee compensation? If the following four conditions are met, you must generally report a payment as nonemployee compensation.

You made the payment to someone who is not your employee; You made the payment for services in the course of your trade or

business (including government agencies and nonprofit organizations); You made the payment to an individual, partnership, estate, or, in

some cases, a corporation; and

You made payments to the payee of at least $600 during the year.


Self-employment tax. Generally, amounts reportable in box 7

are subject to self-employment tax. If payments to individuals are not

subject to this tax and are not reportable elsewhere on Form 1099-MISC, report the payments in box 3.

However, report section 530 (of the Revenue Act of 1978) worker payments in box 7.


Examples. The following are some examples of payments to be reported in box 7.

Professional service fees, such as fees to attorneys (including corporations), accountants, architects, contractors, engineers, etc.

Fees paid by one professional to another, such as fee-splitting or referral fees.

Payments by attorneys to witnesses or experts in legal adjudication.

Payment for services, including payment for parts or materials used to perform the services if supplying the parts or materials was incidental to providing the service. For example, report the total insurance company payments to an auto repair shop under a repair contract showing an amount for labor and another amount for parts, if furnishing parts was incidental to

repairing the auto.


Commissions paid to nonemployee salespersons that are subject to repayment but not repaid during the calendar year

A fee paid to a nonemployee, including an independent contractor, or travel reimbursement for which the nonemployee did not account to the payer, if the fee and reimbursement total at least $600. calendar year


Payments to nonemployee entertainers for services. Use Form 1042-S, Foreign Person's U.S. Source Income Subject to

Withholding, for payments to nonresident aliens. Exchanges of services between individuals in the course of their trades or

businesses. For example, an attorney represents a painter for nonpayment of

business debts in exchange for the painting of the attorney's law offices.

The amount reportable by each on Form 1099-MISC is the FMV of his or her own services performed.

However, if the attorney represents the painter in a divorce proceeding, this is an activity that is unrelated to the painter's trade or business.

The attorney must report on Form 1099-MISC the value of his or her services.

But the painter need not report on Form 1099-MISC the value of painting the law offices because the work is in exchange for legal services that are separate from the painters business.


Taxable fringe benefits for nonemployees.

Gross oil and gas payments for a working interest.

Payments to an insurance salesperson who is not your common law or statutory employee.

Directors' fees Commissions paid to licensed lottery

ticket sales agents Payments to section 530 (of the

Revenue Act of 1978) workers.


Nonqualified deferred compensation (Section 409A) income. Include in box 7 the amount of all deferrals (plus

earnings) reported in box 15b that are includible in gross income because the nonqualified deferred compensation (NQDC) plan fails to satisfy the requirements of section 409A.

The essential notion of 409A is to prevent unduly “pushing off” the taxation of income to executives to try to better match tax consequence to period when the income is earned.

These amounts generally are subject to self-employment tax and are also subject to a substantial additional tax under section 409A that is reported on the

nonemployee's Form 1040.


Golden parachute payments to Independent Contractors. A parachute payment is any payment that meets all of the following conditions.

The payment is in the nature of compensation. The payment is to, or for the benefit of, a disqualified individual. The payment is contingent on a change in the ownership of a

corporation, the effective control of a corporation, or the ownership of a substantial portion of the assets of a corporation (a change in ownership or control).

The payment has (together with other payments described in 1, 2, and 3, above, made to the same individual) an aggregate present value of at least three times the individual's base amount.

A disqualified individual is one who at any time during the 12-month period prior to and ending on the date of the change in ownership or control of the corporation (the disqualified individual determination period) was an employee or independent contractor and was, in regard to that corporation, a shareholder, an officer, or a highly compensated individual.

Golden Parachute Payments to Employees are Reported on Form W-2


Payments not reported in box 7. Do not report in box 7, nor elsewhere on Form 1099-MISC: the cost of current life insurance protection

(report on Form W-2 or Form 1099-R); an employee's wages, travel or auto allowance,

or bonuses (report on Form W-2); or the cost of group-term life insurance paid

on behalf of a former employee (report on Form W-2).

1099 Misc Line By LineBox 8. Substitute Payments in Lieu of

Dividends or Interest Enter aggregate payments of at least $10 received by a

broker for a customer in lieu of dividends or tax-exempt interest as a result of a loan of a customer's securities. For this purpose, a customer includes an individual,

trust, estate, partnership, association, company, or corporation.

It does not include a tax-exempt organization, the United States, any state, the District of Columbia, a U.S. possession, or a foreign government.

File Form 1099-MISC with the IRS and furnish a copy to the customer for whom you received the payment.

Also, file Form 1099-MISC for and furnish a copy to an individual for whom you received a payment in lieu of tax-exempt interest.

Substitute payment means a payment in lieu of (a) a dividend or (b) tax-exempt interest to the extent that interest (including 0ID) has accrued while the securities were on loan.

1099 Misc Line By LineBox 9. Payer Made Direct Sales of $5,000 or More

Enter an "X" in the checkbox for sales by you of $5,000 or more of consumer products to a person on a buy-sell, deposit-commission, or other commission basis for resale (by the buyer or any other person) anywhere other than in a permanent retail establishment. Do not enter a dollar amount in this box.

If you are reporting an amount in box 7, you may also check box 9 on the same Form 1099-MISC.

The report you must give to the recipient for these direct sales need not be made on the official form. It may be in the form of a letter showing this information along with commissions, prizes, awards, etc.

1099 Misc Line By LineBox 10. Crop Insurance Proceeds

Enter crop insurance proceeds of $600 or more paid to farmers by insurance companies unless the farmer has informed the

insurance company that expenses have been capitalized under section 278, 263A, or 447.

1099 Misc Line By LineBoxes 11 and 12. Reserved

Make no entries in these boxes

1099 Misc Line By LineBox 13. Excess Golden Parachute Payments

Enter any excess golden parachute payments.

An excess parachute payment is the amount of the excess of any parachute payment over the base amount (the average

annual compensation for services includible in the individual's gross income over the most recent 5 tax years)..

1099 Misc Line By Line Box 14. Gross Proceeds Paid to an

Attorney

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

provider of legal services. Under section 6045(f), report in box 14 payments

that: Are made to an attorney in the course of your

trade or business in connection with legal services, for example, as in a settlement agreement,

Total $600 or more, and Are not reportable by you in box 7.

However, these rules do not apply to wages paid to attorneys that are reportable on Form W-2 or to profits distributed by a partnership to its partners that are reportable on:

Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc., or

Schedule K-1 (Form 1065-B), Partner's Share of Income (Loss) From an Electing Large Partnership.


Attorney

Generally, you are not required to report the claimant's attorney's fees. For example, an insurance company

pays a claimant's attorney $100,000 to settle a claim.

The insurance company reports the payment as gross proceeds of $100,000 in box 14.

The insurance company does not have a reporting requirement for the claimant's attorney's fees subsequently paid from these funds.

However, these rules do


Attorney These rules apply whether or not the legal services are provided to

the payer and whether or not the attorney is exclusive payee (for example, the attorney's and claimant's names are on one check) or other information returns are required for some or all of a payment.

For example, a person who, in the course of a trade or business, pays $600 of taxable damages to a claimant by paying that amount to a claimant's attorney is required :

to furnish Form 1099-MISC to the claimant under section 6041 and furnish Form 1099-MISC to the claimant's attorney under

section 6045(f). For more examples and exceptions relating to payments to

attorneys, see Regulations section 1.6045-5.


Attorney However, these rules do not apply to wages paid

to attorneys that are reportable on Form W-2 or to profits distributed by a partnership to its partners that are reportable on:

Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc., or

Schedule K-1 (Form 1065-B), Partner's Share of Income (Loss) From an Electing Large Partnership.

1099 Misc Line By Line Box 15a. Section 409A Deferrals

You do not have to complete this box. If you complete this box,

Enter the total amount deferred during the year of at least $600 for the nonemployee under all nonqualified plans.

The deferrals during the year include earnings on the current year and prior year deferrals

For deferrals and earnings under NQDC plans for employees, see the Instructions for Forms W-2 and W-3.

1099 Misc Line By Line Box 15a. Section 409A Income

Enter all amounts deferred (including earnings on amounts deferred) that are includible in income under section 409A because the NQDC plan fails to satisfy the requirements of section 409A.

Do not include amounts properly reported on a Form 1099-MISC, corrected Form 1099-MISC, Form W-2, or Form W-2c for a prior year.

Also, do not include amounts that are considered to be subject to a substantial risk of forfeiture for purposes of section 409A

1099 Misc Line By Line Boxes 16-18. State Information

These boxes, and Copies 1 and 2, are provided for your convenience only and need not be completed for the IRS.

Use the state information boxes to report payments for up to two states. Keep the information for each state separated by the dash line.

If you withheld state income tax on this payment, you may enter it in box 16.

In box 17, enter the abbreviated name of the state and the payer's state identification number.

The state number is the payer's identification number assigned by the individual state.

In box 18, you may enter the amount of the state payment. Use Copy 1 to provide information to the state tax

department. Give Copy 2 to the recipient for use in filing the recipient's

state income tax return.

1099 Misc Line By Line

We are done with 1099 Misc. Hurray!!! Questions ????????

Employee or Independent Contractor?

Robert J. Kiggins

General Test Generally an employee relationship exists when the person for

whom services are performed has the right to control and direct the individual who performs ' the services,

not only as to the result to be accomplished by the Work but also as to the details and means by which that result is accomplished.

That is an employee is subject to the will and control of the employer not only as to what shall be done but how it shall be done.

In this connection, it is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if he has the right to do so.

The right to discharge is also an important factor indicating that the person possessing that right is an employer.

Other factors characteristic of an employer, but not -necessarily present in every case, are

the fur nishing 'Of tools and the furnishing of a place to work to the individual who performs the services.

General Test In general, if an, individual is subject to the control or direc

tion of another merely as to the result to be accomplished by the work and not as to the means and methods for accomplishing the result, he is an independent contractor.

An individual performing services as an independent contractor' is not as to such services an employee under the usual common law rules.

Individuals such as physicians, lawyers, dentists, veterinarians, construction contractors, public stenographers, and auctioneers, engaged in the pursuit of an independent trade, business, or profession, in which they offer their services to the public, are independent Contractors and not employees.

Revenue Ruling 87-41: The Twenty Factors

To help determine whether a worker is an employee under the common law rules, the IRS identified 20 factors that

may indicate whether the employer can exercise enough control to establish an employer-employee relationship.

These factors, set forth in Revenue Ruling 87-41, were based on the circumstances that the courts identified and relied upon to decide whether an employment relationship existed.

Not all the factors must be present to find an employee/employment relationship,

but the factors are guides to use to assess the likelihood as to whether an individual is an employee or

an independent contractor.

(1) Instructions. An employee must comply with instructions about when, where and how to work. The control factor is present if the employer has the right to require compliance with the instructions.


(2) Training. An employee receives on-going training from, or at the direction of, the employer.

Independent contractors use their own methods and receive no training from the purchasers of their services.

(3) Integration. An employee’s services are integrated into the business

operations because the services are important to the business. This shows that the worker is subject to direction and control of the employer.

(4) Services rendered personally. If the services must be rendered

personally, presumably the employer is interested in the methods used to accomplish the work as well as the end results. An employee often does not have the ability to assign their work to other employees, an independent contractor may assign the work to others.

(5) Hiring, supervising and paying assistants. If an employer hires,

supervises and pays assistants, the worker is generally categorized as an employee. An independent contractor hires, supervises and pays assistants under a contract that requires him or her to provide materials and labor and to be responsible only for the result.


(6) Continuing relationship. A continuing relationship between the worker and the employer indicates that an employer-employee relationship exists. The IRS has found that a continuing relationship may exist where work is performed at frequently recurring intervals, even if the intervals are irregular.

(7) Set hours of work. A worker who has set hours of work established by an employer is generally an employee.

An independent contractor sets his/her own schedule. (8) Full time required. An employee normally works full time for an

employer.

An independent contractor is free to work when and for whom he or she chooses. (9) Work done on premises. Work performed on the premises of the

employer for whom the services are performed suggests employer control, and therefore, the worker may be an employee.

Independent Contractor may perform the work wherever they desire as long as the contract

requirements are performed. (10) Order or sequence set. A worker who must perform services in the

order or sequence set by an employer is generally an employee. Independent Contractor performs the work in whatever order or sequence they may desire.


(11) Oral or written reports. A requirement that the worker submit regular or written reports to the employer indicates a degree of control by the employer.

(12) Payments by hour, week or month. Payments by the hour, week or

month generally point to an employer-employee relationship. (13) Payment of expenses. If the employer ordinarily pays the worker’s

business and/or travel expenses, the worker is ordinarily an employee. (14) Furnishing of tools and materials. If the employer furnishes

significant tools, materials and other equipment by an employer, the worker is generally an employee.

(15) Significant investment. If a worker has a significant investment in

the facilities where the worker performs services, the worker may be an independent contractor.


(16) Profit or loss. If the worker can make a profit or suffer a loss, the worker may be an independent contractor. Employees are typically paid for their time and labor and have no liability for business expenses.

(17) Working for more than one firm at a time. If a worker performs services for a multiple of unrelated firms at the same time, the worker may be an independent contractor.

(18) Making services available to the general public. If a worker makes his or her services available to the general public on a regular and consistent basis, the worker may be an independent contractor.

(19) Right to discharge. The employer’s right to discharge a worker is a

factor indicating that the worker is an employee. (20) Right to terminate. If the worker can quit work at any time without

incurring liability, the worker is generally an employee.

Three Categories of Control Factors

Over the years, the Internal Revenue Service recognized changes in business practices and therefore created three categories of factors to assess the degree of control and independence.

These factors are to be used in conjunction with the 20 Factors. (1) Behavioral Control - Includes the type of instructions the business

gives to the worker, such as when and where to do the work, and the training the business provides to the worker. The key consideration is whether the business has retained the right to control the details of

the worker’s performance or has relinquished that right

(2) Financial Control - Address the business’s right to control the business aspects of the worker’s job.

(3) Relationship Of Parties - The nature of the relationship may be evidenced by:

a written contract; the benefits the business provides to an employee, such as paid vacation and health

coverage; the permanency of the position; and the extent to which the services performed are a key aspect of the regular business of the

company.

Indicator Zones

The ultimate test is whether the principal has the “right to direct” and control the individual in question.

Case law tends to look at six indicator zones to answer this test:1. Details of Work Performance2. Expenses of Work Performed3. Compensation for Work4. Duration of Work Performance5. Structure of Work Position6. Location of Work Performance

1. Details of Work Performance Right to Control

Employee – activities and time are surrendered to the control of the employer

Put differently – the employer has the right to say when, where, and how the worker is to work

Independent contractor – agreement to accomplish results or to use skill and care in accomplishing results

Training a Worker Where a worker is required by the person for whom services are

perfomed to be trained or required to work with an experienced worker this is indicative of an employee relationship

Set Hours of Work and Requirement to Work Full Time These are factors indicative of employee status

1. Details of Work Performance Order or Sequence Set – Tends to Show Employee Status

Where the worker is required to follow the established routines and schedules of the person or persons for whom the services are performed – this indicates employee status

The key fact to consider is whether the business retains the right to direct and control the worker, regardless of whether the business actually exercises that right.

Required Written or Oral Reports – Tends to Show Employee Status when the reporting system "measures compliance with

performance standards concerning the details of how the work is performed, the system and its enforcement are evidence of control over the worker's behavior

1. Details of Work Performance Skill

Less skilled more likely to be employees By contrast, highly trained professional

Almost impossible to give such a person detailed instructions

In such a case the key point whether the workers are engaged in the pursuit of an independent' trade, business, or profession in which they offer their services to the public.

If so – they are likely independent contractors If not – they are likely employees

Labels Although the label placed on a relationship is irrelevant if it does not

represent its true substance, it can be helpful in deciphering the parties' intent.

2. Expenses of Work Performance

Payment of business or/or Travel Expenses – indicia of employee status Note: clients of lawyers and accountants pay their travel expenses –

does not maker them employees Unreimbursed expenses – independent contractors more likely to have

these IRS does recognized that both employees and independent contractors

have reimbursed expenses It is more useful to IC status that worker pays fixed on going costs that

are paid regardless of whether work is being performed Furnishing of Tools and Materials to Worker – indicia of employee status

The more valuable the items furnished the more importance that is placed on this factor

Relatively minor items furnished by worker do not typically support independent contractor status

Significant Investment in Business – indicia of IC status E.g. - Maintaining an office – c.f. but a home office would be scrutinized Costly equipment – e.g. computer systems

2. Expenses of Work Performance

Licenses and Fees IC’s obtain and pay for licenses (business,

trade, construction permits, and professional licenses)

IC’s also pay estimated taxes and self-employment taxes

W-2 is only evidence of employee status – it’s not conclusive

Conversely the same applies as to 1099 – it’s only evidence of IC status

3. Compensation for Work Payment by the hour week or month

Generally indicates EE status C.F. Payment by the job or on a commission generally indicates IC

status A minimum salary or a non-refundable draw is indicative of EE status

Realization of a Profit or a Loss Worker subject to real risk of economic loss due to significant

investments or expense liability – IC Risk of non-payment of earned amounts – IC Is the worker making the decisions that affect the worker’s bottom line

– if so IC Insurance

Worker’s comp, fidelity bond, medical/dental/disability – Employee IC’s provide own insurance in these areas

Benefits Tax qualified plan, annuity or cafeteria plan – can only be provided to

employees Sick pay, paid vacations, bonuses, travel and business expense

reimbursement, advances or drawing account – indicate employee status

4. Duration of Work Performance

Right of Discharge Employee – can be fired IC – generally can’t be fired as long as

performs pursuant to contract Right of Worker to Terminate =

neutral Length of Relationship

In general, the longer the term of the relationship the more likely that employee status will be found

5. Structure of Work Position Integration into the Business

The more the success of the business is dependent upon the success of the worker the more likely that EE status results

However, this is likely not a determinative factor In fact, it is likely less a factor now than in the past

Services rendered personally If worker can’t delegate performance – some evidence that worker is

EE Many courts don’t consider this a helpful factor

Hiring, Supervising and Paying Assistants This is some evidence of IC status Generally won’t be determinative

Working for more than one firm at a Time Some evidence of IC status Not determinative – e.g especially if the firms are somewhat related

5. Structure of Work Position Making service available to General Public

A worker who consistently makes his or her service available to the general public – strong evidence of IC status

This might be done by advertising, use of business cards, a web site, or other materials to make the public aware of availability

Status of Principal If principal is in business – evidence that worker is EE Fits into a consideration under “relationship” of the

parties Intent

Status of worker (IC or EE) intended by parties is a factor

However, just calling a worker an EE or IC is not determinative

5. Structure of Work Position

Industry Custom IE whether workers of the same type are

generally treated as IC’s or EE’s by the industry

This will generally not be afforded much weight by the IRS

However, there is case law that does use industry custom to decide

5. Structure of Work Position

State Law Characterization It is not determinative whether state law

characterizes a worker (e.g. for unemployment or workers comp) as an IC or an EE

In fact, IRS Training Course says state law determinations should be disregarded

Rationale – different standards apply Usually under broader or different definitions

of “employee” than exist under common law

5. Structure of Work Position Incorporation – Worker sets up Corporate Shell

This will do the trick of making the corporation an IC However, the worker in turn will be an employee of his

corporation It also means the workers corporation will have to do

payroll withholding, provide worker’s compensation, provide disability and generally do what a payroll office function has to do

Location of work performance If worker performs on premises furnished by person hiring – some evidence of

EE CF – if worker performs off premises – some evidence of IC These days – remote home office workers are becoming more common – many

are EE’s Probably more the key is if the worker has to work on premises of hirer, at set

hours, and on set dats

Backup Withholding

Robert J. Kiggins

Backup Withholding

What is Backup Withholding? Income tax may have to be withheld at a flat rate

of 28% on the following types of income: Interest, Dividends, Rents Royalties, Commissions and fees paid to independent contractors, Payments from brokers on stock and bond transactions.

Backup Withholding

When does the IRS require Backup Withholding?

The payee fails to furnish his or her taxpayer identification number (TIN) to you.

For interest, dividend, and broker and barter exchange accounts the payee fails to certify, under penalties of perjury, that the TIN provided is correct,

Backup Withholding

When does the IRS require Backup Withholding? - Continued

The IRS notifies you to impose backup withholding because the payee furnished an incorrect TIN,

For interest and dividend accounts or instruments, you are notified that the payee is subject to backup withholding or

For interest and dividend accounts the payee fails to certify to you, under penalties of perjury, that he or she is not subject to backup withholding

Backup WithholdingPenalties

If you do not collect and pay over backup withholding from affected payees as required, you may become liable for any uncollected amount!!!!

When to Apply Backup Withholding

1. Failure to furnish TIN in the manner required.

Withhold on payments made until the TIN is furnished in the manner required.

Special backup withholding rules may apply if the payee has applied for a TIN.

The payee may certify to this on Form W-9 by noting "Applied For" in the TIN block and by signing the form.

This form then becomes an "awaiting-TIN" certificate, and the payee has 60 days to obtain a TIN and furnish it to you.

If you do not receive a TIN from the payee within 60 days and you have not already begun backup withholding, begin backup withholding and continue until the TIN is provided.


1. Failure to furnish TIN in the manner required – Cont’d.

The 60-day exemption from backup withholding applies only to interest and dividend payments and certain payments made with respect to readily tradable instruments.

Therefore, any other payment, such as nonemployee compensation, is subject to backup withholding even if the payee has applied for and is awaiting a TIN.


2. Notice from the IRS that payee's TIN is incorrect. You may choose to withhold on any reportable payment

made to the account(s) subject to backup withholding after receipt of a backup withholding notice.

But you must withhold on any reportable payment made to the account more than 30 business days after you received the notice.

This triggers a “B” Notice Requirement – More on this in a bit

Stop withholding within 30 days after you receive a certified Form W-9 (or other form that requires the payee to certify under penalty of perjury).


3. Notice from the IRS that payee is subject to backup withholding due to notified payee underreporting.

You may choose to withhold on any reportable payment made to the account(s) subject to backup withholding after receipt of the notice,

but you must withhold on any reportable payment made to the account more than 30 business days after you receive the notice.

The IRS will notify you in writing when to stop withholding, or the payee may furnish you a written certification from the IRS stating when the withholding should stop.

In most cases, the stop date will be January 1 of the year following the year of the notice.


4. Payee failure to certify that he or she is not subject to backup withholding.

Withhold on reportable interest and dividends until the certification has been received.

Backup Withholding – B Notices How do I know if a TIN on my account is incorrect?

The IRS will send you a CP2100 or a CP2100A Notice and a listing of incorrect name/TINs.

This will trigger a Requirement that you send a “B” Notice to the Accounts Involved

A "B" Notice is a backup withholding notice. There are two "B" Notices -- the First "B" Notice and the

Second "B" Notice. You must send the First "B" Notice and a Form W-9 to a

payee after you receive the first CP2100/CP2100A Notice with respect to this account for the purpose of soliciting a correct name/TIN combination.

Backup Withholding – B Notices The text of the Second "B" Notice is different than that

of the First "B" Notice. It tells the payee to contact IRS or SSA to obtain the

correct name/TIN combination. The mailing of the second notice should not include a

Form W-9. You must send the second B Notice after receiving the second CP2100 or CP2100A with respect to this account. The payee must certify the Name/TIN combination after receiving the second "B" Notice.

Generally, you do not have to send a "B" Notice more than two times within three calendar years to the same account.

Backup Withholding

Who's Exempt from Backup Withholding?

US citizens and resident aliens will be exempt from backup withholding if: You properly report your name and Social

Security number to the payer using Form W-9, and that information matches the IRS records,

You have not been notified by the IRS that you are subject to mandatory backup withholding.

Backup Withholding

How do I get the individual's taxpayer ID?

Use Form W-9 to request the identification number of the individual.

What if the individual refuses or neglects to give the taxpayer ID number?

If you do not receive the information, start backup withholding immediately and continue until you receive it.

Backup Withholding

Reporting backup withholding. Report backup withholding on Form

945, Annual Return of Withheld Federal Income Tax

Additional information. For more information about backup withholding, see Pub. 1281.

Backup Withholding

How do I deposit the backup withholding amounts?

Generally the deposit rules for Form 945 are the same as those for Form 941 (payroll taxes).

You are a semiweekly or monthly depositor, depending on the amount deposited.

You may use the IRS e-file (EFTPS) system or make deposits using the deposit coupon.

There are some special rules that relate to depositing backup withholding

Read the Instructions for Form 945 for more information.

Filing with the IRS and Correcting Returns

Robert J. Kiggins

Intro to Filing Caveat: Don’t confuse filing with IRS with sending reports to Payees .

Here we are generally talking about filing with the IRS

When To File File Forms 1099 on paper by February 28, 2012, or April 2, 2012, if filing electronically. Also file Form

1096 with paper forms.

You will meet the requirement to file if the form is properly addressed and mailed on or before the due date. If the regular due date falls on a Saturday, Sunday, or legal holiday, file by the next business day. A business day is any day that is not a Saturday, Sunday, or legal holiday.

Private delivery services. You can use certain private delivery services designated by the IRS to meet the “timely mailing as timely filing” rule for information returns. The list includes only the following.

DHL Express (DHL): DHL Same Day Service.

Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2 Day, FedEx International Priority, and FedEx International First.

United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, and UPS Worldwide Express.

The private delivery service can tell you how to get written proof of the mailing date.

Intro to Filing

Private delivery services cannot deliver items to P.O. boxes. You must use the U.S. Postal Service to mail any item to an IRS P.O. box address

Reporting period. Forms 1099 are used to report amounts paid during the calendar year. Forms 5498, 5498-ESA, and 5498-SA are used to report amounts contributed and the fair market value of an account for the calendar year.

Extension. You can get an automatic 30-day extension of time to file by completing Form 8809, Application for Extension of Time To File Information Returns.

The form may be submitted on paper, or through the FIRE (Filing Information Returns Electronically) system either as a fill-in form or an electronic file. No signature or explanation is required for the extension.

However, you must file Form 8809 by the due date of the returns in order to get the 30-day extension.

Under certain hardship conditions you may apply for an additional 30-day extension. See the instructions for Form 8809 for more information.

How to apply. As soon as you know that a 30-day extension of time to file is needed, file Form 8809.

If you are requesting an extension for 10 or fewer filers, follow the instructions on Form 8809 and mail it to the address listed in the instructions on the form or you can fax it. See the instructions for Form 8809 for more information.

If you are requesting an extension for more than 10 filers, you must submit the extension request online or electronically through the FIRE system.

Intro to Filing Where to File Send all information returns filed on paper to the following: If your principal business, office or agency, or legal residence in the case of an

individual, is located in Alabama, Arizona, Arkansas, Connecticut, Delaware, Florida, Georgia, Kentucky, Louisiana, Maine, Massachusetts, Mississippi, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, Texas, Vermont, Virginia, West Virginia :

Department of the Treasury Internal Revenue Service Center Austin, TX 73301

If your principal business, office or agency, or legal residence in the case of an individual, is located in Alaska, California, Colorado, District of Columbia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Maryland, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, North Dakota, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Utah, Washington, Wisconsin, Wyoming:

Department of the Treasury Internal Revenue Service Center Kansas City, MO 64999

If your legal residence or principal place of business or principal office or agency is outside the United States, file with the Department of the Treasury, Internal Revenue Service Center, Austin, TX 73301.

State and local tax departments. Contact the applicable state and local tax department as necessary for reporting requirements and where to file.

Form 1096 – Paper Form Filers Filing Returns With the IRS The IRS strongly encourages the quality review of data before filing to

prevent erroneous notices from being mailed to payees (or others for whom information is being reported).

If you must file any 1099 with the IRS and you are filing paper forms, you must send a Form 1096 with each type of form as the transmittal document.

You must group the forms by form number and submit each group with a separate Form 1096. For example, if you file Forms 1099-DIV, 1099-INT and 1099-MISC, complete one Form 1096 to

transmit Forms 1099-DIV , another for Forms 1099-INT, and a third for Forms 1099-MISC. Specific instructions for completing Form 1096 are included on the form.

Transmitters, paying agents, etc. A transmitter, service bureau, paying agent, or disbursing agent (hereafter referred to as “agent”) may sign Form 1096 on behalf of any person required to file (hereafter referred to as “payer”) if the conditions in 1 and 2 below are met.

1. The agent has the authority to sign the form under an agency agreement (oral, written, or implied) that is valid under state law and

2. The agent signs the form and adds the caption “For: (Name of payer).” Signing of the form by an authorized agent on behalf of the payer does

not relieve the payer of the liability for penalties for not filing a correct, complete, and timely Form 1096 and accompanying returns.

Filing – Additional General Considerations

Forms 1099 or acceptable substitute statements to recipients issued by a service bureau or agent should show the same payer's name as shown on the information returns filed with the IRS.

For information about the election to report and deposit backup withholding under the agent's TIN and how to prepare forms if the election is made, see Rev. Proc. 84-33, 1984-1 C.B. 502, and the Instructions for Form 945.

Keeping copies. Generally, keep copies of information returns you filed with the IRS or have the ability to reconstruct the data for at least 3 years, 4 years for Form 1099-C, from the due date of the returns. Keep copies of information returns for 4 years if backup withholding was imposed.

Shipping and mailing. Send the forms to the IRS in a flat mailing (not folded). If you are sending many forms, you may send them in conveniently sized packages. On each package, write your name, number the packages consecutively, and place Form 1096 in package number one. Postal regulations require forms and packages to be sent by First-Class Mail.

Paper Filing Paper Document Reporting If you are required to file 250 or more information returns, you must file electronically

Follow these guidelines. If you have a small number of forms, consider contacting an IRS business partner who may be able to

prepare them with little or no cost to you. Type entries using black ink in 12-point Courier font. Copy A is read by machine and must be typed

clearly using no corrections in the data entry fields. Data must be printed in the middle of the blocks, well separated from other printing and guidelines.

Entries completed by hand, or using script, italic, or proportional spaced fonts, or in colors other than black, cannot be read correctly by machine.

Make all dollar entries without the dollar sign, but include the decimal point (00000.00). Show the cents portion of the money amounts. If a box does not apply, leave it blank.

Do not enter 0 (zero) or “None” in money amount boxes when no entry is required. Leave the boxes blank unless the instructions specifically require that you enter a 0 (zero). For example, in some cases, you must enter 0 (zero) to make corrections. See part H on this page.

Do not enter number signs (#) e.g. use RT 2, not Rt. #2. Send the entire page of Copy A of your information returns with Form 1096 to the IRS even if some of

the forms are blank or void Do not use staples on any forms. To locate an IRS business partner who may be able to offer low-cost or even free filing of certain forms,

enter e-file for Business Partners in the Search box on IRS.gov.

Paper Filings Multiple filings. If, after you file Forms 1099 you discover additional

forms that are required to be filed, file these forms with a new Form 1096. Do not include copies or information from previously filed returns.

Required format. Because paper forms are scanned, all Forms 1096 and Copies A of Forms 1099, must be prepared in accordance with the following instructions. If these instructions are not followed, you may be subject to a penalty for each incorrectly filed document.

Do not cut or separate Copies A of the forms that are printed two or three to a sheet (except Forms W-2G and 1098-C).

Generally, Forms 1099 are printed two or three to an 8 x 11 inch sheet. Form 1096 is printed one to an 8 x 11 inch sheet. These forms must be submitted to the IRS on the 8 x 11 inch sheet. If at least one form on the page is correctly completed, you must

submit the entire page Send the forms to the IRS in a flat mailing (not folded).

Paper Filings No photocopies of any forms are acceptable.. Do not staple, tear, or tape any of these forms. It will interfere with the IRS' ability to scan the

documents. Pinfeed holes on the form are not acceptable. Pinfeed strips outside the 8 x 11 inch area must

be removed before submission, without tearing or ripping the form. Substitute forms prepared in continuous or strip form must be burst and stripped to conform to the size specified for a single sheet (8 x 11 inches) before they are filed with the IRS.

Do not change the title of any box on any form. Do not use a form to report information that is not properly reportable on that form. If you are unsure of where to report the data, call the information reporting call site at 1-866-455-7438 (toll free).

Report information only in the appropriate boxes provided on the forms. Make only one entry in each box unless otherwise indicated in the form's specific instructions.

Do not submit any copy other than Copy A to the IRS. Do not use prior year forms unless you are reporting prior year information. Do not use

subsequent year forms for the current year. Because forms are scanned, you must use the current year form to report current year information.

Use the official forms or substitute forms that meet the specifications in Pub. 1179. If you submit substitute forms that do not meet the current specifications and that are not scannable, you may be subject to a penalty for each return for improper format. See part O on page 11.

Do not use dollar signs ($) (they are preprinted on the forms), ampersands (&), asterisks (*), commas (,), or other special characters in money amount boxes.

Do not use apostrophes ('), asterisks (*), or other special characters on the payee name line.

Paper Filings - Errors Common errors. Be sure to check your returns to prevent the following common

errors. Duplicate filing. Do not send the same information to the IRS more than once. Also see Multiple filings on this page.

Filer's name, address, and TIN are not the same on Form 1096 and the attached Forms 1099.

Decimal point to show dollars and cents omitted. For example, 1230.00 is correct, not 1230.

Two or more types of returns submitted with one Form 1096 (for example, Forms 1099-INT and 1099-MISC with one Form 1096). You must submit a separate Form 1096 with each type of return.

Correcting Paper Filed Returns If you filed a return with the IRS and later discover you made an error on it, you must:

Correct it as soon as possible and file Copy A and Form 1096 with your Internal Revenue Service Center

Furnish statements to recipients showing the correction. When making a correction, complete all information (see Filing corrected returns on paper

forms below). Do not cut or separate forms that are two or three to a page. Submit the entire page even if

only one of the forms on the page is completed. Do not staple the forms to Form 1096. Do not send corrected returns to the IRS if you are correcting state or local information only.

Contact the state or local tax department for help with this type of correction. To correct payer information, write a letter to the IRS:

1. Name and address of the payer2. Type of error (including the incorrect payer name/TIN that was reported)3. Tax year4. Payer TIN5. Transmitter Control Code (TCC)6. Type of return7. Number of payees8. Filing method (paper or electronic)9. Was federal income tax withheld? Send the letter to Internal Revenue Service, Information Returns Branch, 230 Murall

Drive, Mail Stop 4360, Kearneysville, WV 25430. If a payer realizes duplicate reporting or a large percentage of incorrect information has

been filed, contact the information reporting customer service site at 1-866-455-7438 for further instructions.

Correcting Paper Filed Returns Form 1096.

Use a separate Form 1096 for each type of return you are correcting. For the same type of return, you may use one Form 1096 for both originals and corrections. You do not need to correct a previously filed Form 1096.

CORRECTED checkbox. Enter an “X” in the corrected checkbox only when correcting a form previously filed with the

IRS or furnished to the recipient. Certain errors require two returns to make the correction. See Filing corrected returns on paper forms below to determine when to mark the

“CORRECTED” checkbox. Account number.

If the account number was provided on the original return, the same account number must be included on both the original and corrected returns to properly identify and process the correction

If the account number was not provided on the original return, do not include it on the corrected return. See part L on page 8.

Recipient's statement. You may enter a date next to the “CORRECTED” checkbox. This will help the recipient in the case of multiple corrections.

Filing corrected returns on paper forms. The error charts following give step-by-step instructions for filing corrected returns for the

most frequently made errors. They are grouped under Error Type 1 or 2. Correction of errors may require the submission of more than one return. Be sure to read and

follow the steps given.

Error Type 1 – Form 1099

1. Prepare a new information return.

2. Enter an “X” in the “CORRECTED” box (and date (optional)) at the top of the form.

3. Correct any recipient information such as money amounts and address. Report other information as per

original return.

Incorrect money amount(s), code, or checkbox, or Incorrect address, or Incorrect payee name, or

Error Type 1- Form 1096A return was filed when one should not have been filed. These errors require only one return to make the correction. Caution: If you must correct a TIN and/or a name and address, follow the instructions under Error Type 2.

1. Prepare a new transmittal Form 1096.

2. Provide all requested information on the form as it applies to Part A, 1 and 2.

3. File Form 1096 and Copy A of the return with the appropriate service center.

4. Do not include a copy of the original return that was filed incorrectly

Error Type 2No payee TIN (SSN, EIN, QI-EIN, or ITIN), or Incorrect payee TIN, or Incorrect name and address, or

Step 1. Identify incorrect return submitted.

1. Prepare a new information return.

2. Enter an “X” in the “CORRECTED” box (and date (optional)) at the top of the form

3. Enter the payer, recipient, and account number information exactly as it appeared on the original incorrect return; however, enter 0 (zero) for all money amounts.

Original return filed using wrong type of return (for example, a Form 1099-DIV was filed when a Form 1099-INT should have been filed). Two separate returns are required to make the correction properly. Follow all instructions for both Steps 1 and 2.

Step 2. Report correct information. A. Form 1099 Prepare a new information return.Do not enter an “X” in the “CORRECTED” box at the top of the form. Prepare the new return as though it is an original. Include all the correct information on the form including the correct TIN, name, and address.

B. Form 1096 Prepare a new transmittal Form 1096.Enter the words “Filed To Correct TIN,” “Filed To Correct Name and Address,” or “Filed To Correct Return” in the bottom margin of the form. Provide all requested information on the form as it applies to the returns prepared in Steps 1 and 2.File Form 1096 and Copy A of the return with the appropriate service center.Do not include a copy of the original return that was filed incorrectly.

Void Returns An “X” in the “VOID” box at the top of the form will not correct a

previously filed return. See foregoing for instructions for making corrections.

VOID box. If a completed or partially completed Form 1097, 1098, 1099, 3921, 3922, or 5498 is incorrect and you want to void it before submission to the IRS:

enter an “X” in the “VOID” box at the top of the form. For example, if you make an error while typing or printing a form, you should void it.

The return will then be disregarded during processing by the IRS.

Go to the next form on the page, or to another page, and enter the correct information; but do not mark the “CORRECTED” box

Do not cut or separate the forms that are two or three to a page.

Submit the entire page even if only one of the forms on the page is a good return.

Electronic Reporting

You can file electronically through the Filing Information Returns Electronically System (FIRE System);

however, you must have software that can produce a file in the proper format according to IRS Pub. 1220.

The FIRE System does not provide a fill-in form option for information return reporting. i.e. you need to work with a private vendor

The FIRE System operates 24 hours a day, 7 days a week. You may access the FIRE System via the Internet at fire.irs.gov. See Pub. 1220 for more info

Due dates. File Forms 1099 electronically through the FIRE System by April 2, 2012.

You can request an extension – same rules apply as for paper filing – i.e Form 8809 filed via FIRE

Who must file electronically. If you are required to file 250 or more information returns, you must file electronically. The 250-or-more requirement applies separately to each type of form. For example, if you must file 500 Forms 1098 and 100 Forms 1099-A, you must file Forms 1098 electronically, but you are not required to file Forms 1099-A electronically.

The electronic filing requirement does not apply if you apply for and receive a hardship waiver

http://www.irs.gov/app/scripts/exit.jsp?dest=http://fire.irs.gov

Electronic Filing Filing requirement applies separately to originals and corrections. The electronic filing

requirements apply separately to original returns and corrected returns. Originals and corrections are not aggregated to determine whether you are required to file electronically

For example, if you file 400 Forms 1098 electronically and you are making 75 corrections, your corrections can be filed on paper because the number of corrections for Form 1098 is less than the 250 filing requirement. However, if you were filing 250 or more Form 1098

How to get approval to file electronically. File Form 4419, Application for Filing Information Returns Electronically, at least 30 days before the due date of the returns. File Form 4419 for all types of returns that will be filed electronically. See Form 4419 for more information. Once you have received approval, you need not reapply each year. The IRS will provide a written reply to the applicant and further instructions at the time of approval, usually within 30 days.

How to request a waiver from filing electronically. To receive a waiver from the required filing of information returns electronically, submit Form 8508, Request for Waiver From Filing Information Returns Electronically, at least 45 days before the due date of the returns. You cannot apply for a waiver for more than 1 tax year at a time. If you need a waiver for more than 1 tax year, you must reapply at the appropriate time each year.

If a waiver for original returns is approved, any corrections for the same types of returns will be covered under the waiver. However, if you submit original returns electronically but you want to submit your corrections on paper, a waiver must be approved for the corrections if you must file 250 or more corrections.

If you receive an approved waiver, do not send a copy of it to the service center where you file your paper returns. Keep the waiver for your records only.

Penalty. If you are required to file electronically but fail to do so, and you do not have an approved waiver, you may be subject to a penalty of up to $100 per return for failure to file electronically unless you establish reasonable cause. However, you can file up to 250 returns on paper; those returns will not be subject to a penalty for failure to file electronically

corrections, they would have to be filed electronically.

Furnishing Statements to Recipients

If you are required to file Forms 1099you must also furnish statements to recipients containing the information furnished to the IRS and, in some cases, additional information. Be sure that the statements you provide to recipients are clear and legible.

Substitute statements. If you are not using the official IRS form to furnish statements to recipients, see Pub. 1179 for specific rules about providing “substitute” statements to recipients. Generally, a substitute is any statement other than Copy B of the official form. You may develop them yourself or buy them from a private printer. However, the substitutes must comply with the format and content requirements specified in Pub. 1179 that is available on IRS.gov.

Telephone number. You are required to include the telephone number of a person to contact on the following statements to recipients: 1099-A, 1099-B, 1099-C, 1099-CAP, 1099-DIV, 1099-G (excluding state and local income tax refunds), 1099-H, 1099-INT, 1099-K, 1099-LTC, 1099-MISC (excluding fishing boat proceeds), 1099-OID, 1099-PATR, 1099-Q, and 1099-S.

You may include the telephone number in any conspicuous place on the statements.

This number must provide direct access to an individual who can answer questions about the statement. Although not required, if you report on other Forms 1099 and 5498, you are encouraged to furnish telephone numbers.

Rules for furnishing statements. Different rules apply to furnishing statements to recipients depending on the type of payment (or other information) you are reporting and the form you are filing.

Statements to Recipients Dividend, interest, and royalty payments. For payments of dividends reported on Form 1099-DIV, interest including original

issue discount and tax-exempt interest) under section 6049 (reported on Form 1099-INT or 1099-OID), or royalties under section 6050N (reported on Form 1099-MISC or 1099-S)

you are required to furnish an official IRS Form 1099 or an acceptable substitute Form 1099 to a recipient either in person, by First-Class Mail to the recipient's last known address, or electronically (see Electronic recipient statements

below ). Statements may be sent by intraoffice mail if you use intraoffice mail to send account information and other correspondence

to the recipient.

Statement mailing requirements for Forms 1099-DIV, 1099-INT, 1099-OID, and 1099-PATR, and forms reporting royalties only.

The following statement mailing requirements apply only to Forms 1099-DIV (except for section 404(k) dividends), 1099-INT (except for interest reportable in the course of your trade or business under section 6041), 1099-OID, 1099-PATR, and timber royalties reported under section 6050N (on Form 1099-MISC or 1099-S).

The mailing must contain the official IRS Form 1099 or an acceptable substitute and may also contain the following enclosures: (a) Form W-2, applicable Form W-8, Form W-9, or other Forms W-2G, 1097, 1098, 1099, 3921, 3922, and 5498 statements; (b) a check from the account being reported; (c) a letter explaining why no check is enclosed; (d) a statement of the person's account shown on Forms 1097, 1098, 1099, 3921, 3922, or 5498; and (e) a letter explaining the tax consequences of the information shown on the recipient statement.

A statement of the person's account (year-end account summary) that you are permitted to enclose in a statement mailing may include information similar to the following: (a) the part of a mutual fund distribution that is interest on U.S. Treasury obligations; (b) accrued interest expense on the purchase of a debt obligation; and (c) the cost or other basis of securities and the gain/loss on the sale of securities.

No additional enclosures, such as advertising, promotional material, or a quarterly or annual report, are permitted. Even a sentence or two on the year-end statement describing new services offered by the payer is not permitted. Logos are permitted on the envelope and on any nontax enclosures.

A recipient statement may be perforated to a check or to a statement of the recipient's specific account. The check or account statement to which the recipient statement is perforated must contain, in bold and conspicuous type, the legend “Important Tax Return Document Attached.”

The legend “Important Tax Return Document Enclosed” must appear in a bold and conspicuous manner on the outside of the envelope and on each letter explaining why no check is enclosed, or on each check or account statement that is not perforated to the recipient statement. The legend is not required on any tax form, tax statement, or permitted letter of tax consequences included in a statement mailing. Further, you need not pluralize the word “document” in the legend simply because more than one recipient statement is enclosed.

Statements to Recipients Other information. Statements to recipients for Forms 1099-A, 1099-B, 1099-C, 1099-CAP, 1099-G, 1099-

H, 1099-K, 1099-LTC, 1099-MISC, 1099-Q, 1099-R, 1099-SA, 1099-DIV only for section 404(k) dividends reportable under section 6047, 1099-INT only for interest reportable in the course of your trade or business under section 6041, or 1099-S only for royalties

Need not be, but can be, a copy of the official paper form filed with the IRS. If you do not use a copy of the paper form, the form number and title of your substitute must be the same

as the official IRS form. All information required to be reported must be numbered and titled on your substitute in substantially the

same manner as on the official IRS formHowever, if you are reporting a payment as “Other income” in Box 3 of Form 1099-MISC, you may substitute

appropriate explanatory language for the box title. For example, for payments of accrued wages to a beneficiary of a deceased employee required to be reported on Form 1099-MISC, you might change the title of Box 3 to “Beneficiary payments” or something similar.

Appropriate instructions to the recipient, similar to those on the official IRS form, must be provided to aid in the proper reporting of the items on the recipient's income tax return. For payments reported on Form 1099-B, rather than furnish appropriate instructions with each Form 1099-B statement, you may furnish to the recipient one set of instructions for all statements required to be furnished to a recipient in a calendar year.

Except for royalties reported on Form 1099-MISC, the statement mailing requirements explained on page 8 do not apply to statements to recipients for information reported on the forms listed under Other information above. You may combine the statements with other reports or financial or commercial notices, or expand them to include other information of interest to the recipient. Be sure that all copies of the forms are legible. See Pub. 1179 for certain “composite” statements that are permitted.

Statement to Recipients When to furnish forms or statements. Generally, you must furnish

Forms 1099 information by January 31, 2012. Forms 1099-B, 1099-S, and 1099-MISC (only if you are reporting payments in boxes 8 or 14) must be furnished by February 15, 2012. at the time of

You will meet the requirement to furnish the statement if it is properly addressed and mailed, or, with respect to electronic recipient statements, posted to a website, on or before the due date. If the regular due date falls on a Saturday, Sunday, or legal holiday, the due date is the next business day. A business day is any day that is not a Saturday, Sunday, or legal holiday. redemption.

Electronic recipient statements. If you are required to furnish a written statement (Copy B or an acceptable substitute) to a recipient, then you may furnish the statement electronically instead of on paper. This includes furnishing the statement to recipients of, 1099-A, B, C, CAP, DIV, G, H, INT, K, LTC, MISC, OID, PATR, Q, R, S, SA.

Recipient must consent and there are format, posting and notification requirements!!!

Form 1099-R

Robert J. Kiggins

What Gets Reported File Form 1099-R, Distributions From Pensions, Annuities, Retirement or

Profit-Sharing Plans, IRAs, Insurance Contracts, etc., for each person to whom you have made a designated distribution or are treated as having made a distribution of $10 or more from:

profit-sharing or retirement plans, any individual retirement arrangements (IRAs), annuities, pensions, insurance contracts survivor income benefit plans, permanent and total disability payments under life insurance

contracts, charitable gift annuities, etc.

Box-by-Box - Box 1 Gross Distribution

Box 1. Gross distribution Enter the total amount of the distribution before income tax or other deductions were withheld.

Include direct rollovers, IRA rollovers to accepting employer plans, premiums paid by a trustee or custodian for the cost of current life or other insurance protection, including a recharacterization and a Roth IRA conversion.

There is a very important difference between a conversion and a recharacterization. Fortunately, the two terms are related:

IRA Conversion - this refers to the rollover or moving of assets from a Traditional IRA, SIMPLE IRA, or other qualified retirement plan into a Roth IRA. There are qualification rules as well as tax implications when converting to a Roth IRA, both of which might prompt the holder to recharacterize the conversion.

IRA Recharacterization - a recharacterization refers to the undoing, switching, or reversal of an IRA contribution or conversion

Include in this box the value of U.S. Savings Bonds distributed from a plan. Enter the appropriate taxable amount in box 2a. Furnish a statement to the plan participant showing the value of each bond at the time of distribution. This will provide him or her with the information necessary to figure the interest income on each bond when it is redeemed.

Include in box 1 amounts distributed from a qualified retirement plan for which the recipient elects to pay health insurance premiums under a cafeteria plan or that are paid directly to reimburse medical care expenses incurred by the recipient.

Include in box 1 charges or payments for qualified long-term care insurance contracts under combined arrangements. Enter Code W in box 7.

In addition to reporting distributions to beneficiaries of deceased employees, report here any death benefit payments made by employers that are not made as part of a pension, profit-sharing, or retirement plan. Also enter these amounts in box 2a; enter Code 4 in box 7.

Designated Roth account distributions. If you are making a distribution from a designated Roth account, enter the gross distribution in box 1, the taxable portion of the distribution in box 2a, the basis included in the distributed amount in box 5, any amount allocable to an IRA made within the previous 5 years in box 10, and the first year of the 5-taxable-year period for determining qualified distributions in box 11. Also, enter the applicable code(s) in box 7.

http://www.money-zine.com/Financial-Planning/Retirement/Roth-IRA-Conversion/

Box by Box - Box 1 Gross Distribution

Employer securities and other property. If you distribute employer securities or other property, include in box 1 the FMV of the securities or other property on the date of distribution. If there is a loss, special treatment applies

If you are distributing worthless property only, you are not required to file Form 1099-R. However, you may file and enter 0 (zero) in boxes 1 and 2a and any after-tax employee contributions or designated Roth contributions in box 5.

Charitable gift annuities. If cash or capital gain property is donated in exchange for a charitable gift annuity, report the total amount distributed during the year in box 1. See Charitable gift annuities under Box 3 on page 10.

Line by Line – Box 2a Generally, you must enter the taxable amount in box 2a. However, if you are unable to reasonably

obtain the data needed to compute the taxable amount leave this box blank. Do not enter excludable or tax-deferred amounts reportable in boxes 5, 6, and 8. Enter 0 (zero) in box 2a for:

A direct rollover (other than a qualified rollover contribution under section 408A(e) or an IRR – An In Pland Roth Rollover) from a qualified plan, section 403(b) plan, a governmental section 457(b) plan, or a rollover from a designated Roth account into a Roth IRA,

A traditional, SEP, or SIMPLE IRA directly transferred to an accepting employer plan, An IRA recharacterization, A nontaxable section 1035 exchange of life insurance, annuity, endowment or long-term care

insurance contracts, or A nontaxable charge or payment, for the purchase of a qualified long-term care insurance

contract, against the cash value of an annuity contract or the cash surrender value of a life insurance contract.

Recharacterization Example Recharacterization Example The calculation of a recharacterization is fairly straightforward. The computation

timeline starts when the contribution is made to the IRA, and ends immediately before the recharacterization occurs. The amount recharacterized is always the fair market value of the contribution. Let's see how this works using an example:

In this example, we have a Roth IRA that has a starting balance of $50,000 in June. The holder decides to convert $5,000 of their Traditional IRA to their Roth IRA, resulting in an Adjusted Opening Balance of $55,000. In December, the holder receives an incentive compensation payment, pushing their Adjusted Gross Income (AGI) above the $100,000 Roth IRA contribution threshold. In this case, the holder is no longer eligible to complete the Roth IRA conversion.

In January of the following year, the holder decides to reverse their conversion, recharacterizing the Roth IRA conversion as a Traditional IRA. At the time of the recharacterization, the Roth IRA had a Closing Balance of $60,500. No other funds were transferred into the Roth IRA. During the recharacterization, both the conversion dollars ($5,000) as well as earnings must be moved back to the Traditional IRA. The recharacterization amount is the sum of the conversion to be reversed ($5,000) plus the Net Income on those funds.

Net Income is calculated as: Net Income = Amount to Recharacterize x ((Closing Balance - Adjusted Opening Balance) /Adjusted Opening

Balance) Net Income = $5,000 x (($60,500 - $55,000) / $55,000)

Net Income = $5,000 x ($5,500 / $55,000) = $500 Therefore, the Recharacterization Amount is calculated as: Recharacterization Amount = Amount to Recharacterize + Net Income

Recharacterization Amount = $5,000 + $500 = $5,50

http://www.money-zine.com/Definitions/Financial-Dictionary/Adjusted-Gross-Income/

Box 2a Annuity Payments

Essentially the annuity payment needs to get split: Attributable to Ee contributions – not

taxable Attributable to Er contributions – taxable

In most cases (i.e. annuity payment starting after 11/18/1996) or later the so called “Simplified Method” must be used. See IRS Publication 575

Annuity Payments Example Bill Smith, age 65, began receiving retire ment benefits in 2010 under a joint and survivor annuity.

Bill's annuity starting date is January 1, 2010. The benefits are to be paid for the joint lives of Bill and his wife, Kathy, age 65. Bill had contributed $31,000 to a qualified plan and had received no distributions before the annuity starting date. Bill is to receive a retirement benefit of $1,200 a month, and Kathy is to receive a monthly survivor benefit of $600 upon Bill's death.

Bill must use the Simplified Method to figure his taxable. Because his annuity is payable over the lives of more than one annuitant, he uses his and Kathy's combined ages and Table 2 at the bottom of Worksheet A in completing line 3 of the worksheet. His completed worksheet is shown below.

Bill's tax-free monthly amount is $100 ($31,000/310) as shown on line 4 of the worksheet. Upon Bill's death, if Bill has not recovered the full $31,000 investment, Kathy will also exclude $100 from her $600 monthly payment. The full amount of any annuity payments received after 310 payments are paid must be included in gross income.

If Bill and Kathy die before 310 payments are made, a miscellaneous itemized deduction will be allowed for the unrecovered cost on the final income tax return of the last to die. This deduction is not subject to the 2%-of-adjusted gross-income limit.

Annuity Payments – Example Worksheet A. Simplified Method Worksheet for Bill Smith Keep for Your Records 1. Enter the total pension or annuity payments received this year. Also, add this amount to the total for

Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a . . . . . . . . . . . . . . . . . . . . . 1. $ 14,400 2. Enter your cost in the plan (contract) at the annuity starting date plus any death benefit exclusion.*

See Cost (Investment in the Contract) earlier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. 31,000 Note. If your annuity starting date was before this year and you completed this worksheet last year, skip line 3 and enter the amount from line 4 of last year’s worksheet on line 4 below (even if the amount of your pension or annuity has changed). Otherwise, go to line 3. 3. Enter the appropriate number from Table 1 below. But if your annuity starting date was after 1997 and the payments are for your life and that of your beneficiary, enter the appropriate number from

Table 2 below . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. 310 4. Divide line 2 by the number on line 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. 100

5. Multiply line 4 by the number of months for which this year’s payments were made. If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11.

Otherwise, go to line 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. 1,200 6. Enter any amount previously recovered tax free in years after 1986. This is the amount shown on line

10 of your worksheet for last year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. -0- 7. Subtract line 6 from line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. 31,000

8. Enter the smaller of line 5 or line 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. 1,200 9. Taxable amount for year. Subtract line 8 from line 1. Enter the result, but not less than zero. Also, add this amount to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Note: If your Form 1099-R shows a larger taxable amount, use the amount figured on this line instead. If you are a retired public safety officer, see Insurance Premiums for Retired Public Safety

Officers earlier before entering an amount on your tax return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9. $ 13,200 10. Was your annuity starting date before 1987? M Yes. STOP. Do not complete the rest of this worksheet. ú No. Add lines 6 and 8. This is the amount you have recovered tax free through 2010. You will need

this number if you need to fill out this worksheet next year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10. 1,200 11. Balance of cost to be recovered. Subtract line 10 from line 2. If zero, you will not have to complete

this worksheet next year. The payments you receive next year will generally be fully taxable . . . . . . 11. $ 29,800 * A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21, 1996.

Table 1 for Line 3

If the age at annuity starting date was…

Enter on Line 3

55 or under 360

56-60 310

61-65 260

66-70 210

71 or older 160

Table 2 for Line 3

If the combined ages at annuity starting date were

Enter on Line 3

110 or under 410

111-120 360

121-130 310

131-140 260

141 or older 210

Line 2a Taxable Amount

There are numerous additional rules that apply in certain cases such as: Rollovers Designated Roth Accounts Special treatment for distributions of

employer securities Bottom line : consult with your

accountant or tax attorney on Line 2a – not a do it yourself project.

Line 2b – Taxable Amount not Determined

Enter an "X" in this box only if you are unable to reasonably obtain the data needed to compute the taxable amount (c.f not just because you don’t know the applicable law)

If you check this box leave 2a blank.

Box 2b – Total Distribution

Enter an “X” only if the amount is a total distribution

A total distribution is one or more distributions made within the year in which the entire amount is distributed

If periodic or installment payments are made, mark this box in the year final payments are made

Box 3 – Capital Gains This only applies to active participation in the plan prior to 1974

Basically the portion of a lump sum distribution allocable to a participants pre 1974 participation in the plans will be eligible for capital gains treatment

Not a lot of cases are left where this will apply

Box 4 – Federal Income Tax Withheld

Withholding of 20% is required on any designated distribution that's an eligible rollover distribution, unless there's a direct trustee-to-trustee transfer. Withholding is required on periodic and lump-sum payments from certain employee plans and certain annuities. However, certain recipients may elect not to have tax withheld.

Mandatory 20% withholding on eligible rollover distributions. Unless a distributee elects to have the distribution paid directly to an eligible

retirement plan under the trustee-to-trustee rules (114319), a payor must withhold 20% of any designated distribution that's an "eligible rollover distribution”

An eligible rollover distribution (reported by the payor on Form 1099-R is any distribution to an employee from a qualified trust (not from an IRA, SEP, or SIMPLE plan) other than:

a required distribution under Code Sec. 401(a)(9) – essentially the RMD’s starting at age 70 1/2;

any distribution that is one of a series of substantially equal periodic payments made (a) not less frequently than annually for the life (or life expectancy) of the employee (or joint lives or expectancies of the employee and his designated beneficiary), or (b) for a specified period of ten years or more; or

. . . a hardship distribution from a 401(k) or 403(b) plan. No withholding is required: (1) if the total distribution paid to the distributee

under the plan within one tax year is expected to be less than $200; or hurricane victims


Required withholding for designated distributions.

Withholding is required for designated distributions but the recipient generally may elect out,, unless the distribution is an eligible rollover distribution

Designated distributions are periodic as well as nonperiodic (including lump-sum) payments from pension, profit sharing, stock bonus or other employer deferred compen sation plans, as well as from IRAs (other than Roth IRAs) and commercial annuities, whether or not the contract was purchased under an employer's plan for employees.

Annuity payments and other distributions under most state or local government deferred compensation plans, including the Civil Service Retirement System are subject to income tax withholding as well.

The payor of a designated distribution must withhold and is liable for the payment of the tax (unless the payee elects out).

But in the case of a qualified pension, profit sharing, stock bonus, annuity, or 457 governmental plan, the plan administrator has the responsibility,

Unless he directs the payor to withhold and provides the payor with the information set out in the regs. In that case, the responsibility reverts to the payor.


Withholding from periodic payments. Tax must be withheld in accordance with a recipient's withholding certificate or, if none, by

treating the payee as a married individual claiming three withholding exemptions even if the payor is aware the payee is single. The amount to be withheld is calculated separately from any amounts that actually are wages to the payee for the same period.

To prevent under withholding due to reduced withholding in connection with the Making Work Pay Credit in 2009 and 2010, IRS has provided optional procedures for pension payors allowing for increased withholding.

Election out of withholding on periodic payments—Form W-4P. A recipient of periodic payments (except for certain U.S. citizens and expatriates living

abroad,) may elect not to have any tax withheld. The election remains in effect until revoked. Elect (or revoke) on Form W-4P.

If the recipient doesn't furnish his taxpayer identification number (TIN) to the payor or if IRS has notified the payor that the TIN furnished is incorrect, an election out of withholding isn't effective.

For periodic payments that are "eligible rollover distributions," see above


Withholding from nonperiodic distributions. The payor of any nonperiodic distribution that is not an eligible rollover distribution

subject to 20% mandatory withholding must withhold an amount equal to 10% of that distribution unless the recipient elects out of withholding .

Electing out of withholding on nonperiodic distributions—Form W-4P. A payee (except for recipients of eligible rollover distributions , and certain U.S.

citizens and expatriates living abroad) may elect exemption from withholding for any nonperiodic distribution. The election is made on Form W-4P on a distribution-by-distribution basis.

If the recipient doesn't furnish his taxpayer identification number (TIN) to the payor or if IRS has notified the payor that the TIN furnished is incorrect, an election out of withholding isn't effective.

Payor must notify payee of right to elect to have no tax withheld. For periodic payments, the notice to make, renew, or revoke the election out of

withholding is required no earlier than six months before and no later than the date of the first payment.

For nonperiodic payments the notice should be given not earlier than six months before the distribution and not later than the time that will give the payee reasonable time to elect out.

The notice must state that withholding will apply unless the payee elects otherwise, and if he elects no withholding, estimated tax may apply.

Box 5. Employee contributions/designatedRoth contributions or insurance premiums

Enter the employee's contributions to a profit-sharing or retirement plan, designated Roth contributions, or insurance premiums that the employee may recover tax free this year (even if they exceed the box 1 amount).

This amount reflects the portion of the distribution that is tax-free because it is part of the taxpayer's or spouse's contributions to the account, including profit-sharing and retirement plans, Roth IRA accounts, and certain insurance premiums.

The entry in box 5 may include any of the following: (a) designated Roth contributions or contributions actually made on behalf of the employee

over the years under the retirement or profit-sharing plan that were required to be included in the income of the employee when contributed (after-tax contributions),

(b) contributions made by the employer but considered to have been contributed by the employee under section 72(f),

(c) the accumulated cost of premiums paid for life insurance protection taxable to the employee in previous years and in the current year under Regulations section 1.72-16 (cost of current life insurance protection) (only if the life insurance contract itself is distributed), and

(d) premiums paid on commercial annuities. Do not include contributions to any section 401(k) plan, or any other contribution to a retirement plan that was not an after-tax contribution.

Generally, for qualified plans, section 403(b) plans, and nonqualified commercial annuities, enter in box 5 the employee contributions or insurance premiums recovered tax free during the year based on the method you used to determine the taxable amount to be entered in box 2a. On a separate Form 1099-R, include the portion of the employee's basis that has been distributed from a designated Roth account

Box 6 – Unrealized Appreciation in Employer Securities

Use this box if a distribution from a qualified plan (except a qualified distribution from a designated Roth account) includes securities of the employer corporation (or a subsidiary or parent corporation) and you can compute the NUA in the employer's securities.

Enter all the NUA in employer securities if this is a lump-sum distribution. If this is not a lump-sum distribution, enter only the NUA in employer securities attributable to employee contributions.

See Regulations section 1.402(a)-1(b) for the determination of the NUA. Also see Notice 89-25, Q/ A-1, 1989-1 C.B. 662.

Include the NUA in box 1 but not in box 2a except in the case of a direct rollover to a Roth IRA

You do not have to complete this box for a direct rollover.

Box 7 Distribution Codes Enter an "X" in the IRA/SEP/SIMPLE checkbox if the distribution is from a traditional IRA, SEP IRA, or

SIMPLE IRA. Do not check the box for a distribution from a Roth IRA or for an IRA recharacterization.

Enter the appropriate code(s) in box 7. Use the Guide to Distribution Codes on pages 13 through 15 of IRS Instructions for Forms 1099-R and 5498 to determine the appropriate code(s) to enter in box 7 for any amounts reported on Form 1099-R. Read the codes carefully and enter them accurately because the IRS uses the codes to help determine whether the recipient has properly reported the distribution. If the codes you enter are incorrect, the IRS may improperly propose changes to the recipient's taxes.

Box 8 - Other Enter the current actuarial value of an annuity contract that is part

of a lump-sum distribution. Do not include this item in boxes 1 and 2a.

To determine the value of an annuity contract, show the value as an amount equal to the current actuarial value of the annuity contract, reduced by an amount equal to the excess of the employee's contributions over the cash and other property (not including the annuity contract) distributed.

If an annuity contract is part of a multiple recipient lump-sum distribution, enter in box 8, along with the current actuarial value, the percentage of the total annuity contract each Form 1099-R represents.

Also, enter in box 8 the amount of the reduction in the investment (but not below 0 (zero)) against the cash value of an annuity contract or the cash surrender value of a life insurance contract due to charges or payments for qualified long-term care insurance contracts.

Box 9a. Your percentage of total distribution

Use if this is a total distribution of account assets made to more than 1 recipient

Enter the percentage received by the person whose name appears on Form 1099-R.

You need not complete this box for any IRA distributions or for a direct rollover.

Box 9bTotal Employee Contributions

This is the total amount of employee contributions or designated Roth IRA contributions made to the account for this Form 1099-R, not including amounts already received tax-free in prior years. This box is for informational purposes for the Recipient only.

It is not required that this be filled out

For a total distribution of the recipient’s account report the total employee contributions or designated Roth contributions in Box 5 instead of Box 9b

Box 10 – Amount Allocable to IRR within Past 5 Years

IRR = In Plan Roth Rollover An in-plan Roth rollover is a distribution from a recipient’s eligible qualified

plan account, other than an account that holds designated Roth contributions, that the recipient rolls over to his designated Roth account in the same plan.

A designated Roth account is a separate account in a 401(k), 403(b) or, after 2010, a governmental 457(b) plan that holds designated Roth contributions.

The rationale for this is that distributions from a Roth become tax free The “price” of the rollover is that the amount rolled over is subject to

immediate tax

Box 11 – Designated Roth Account

This is the first year of the five year period referred to in Box 11.

It is the first year the designated Roth account was first established by the recipient.

THANK YOU!

Robert J. KigginsCounselor-At-Law

McCarthy Fingar LLP11 Martine Avenue

White Plains, NY 10606Tel (914) 946-3700 Ext. 324E-mail: [email protected]

Documents

Form 1099 – Overview Robert J. Kiggins September 27, 2011