After all these years of filing requirements for Form 1099, the Internal Revenue Service has finally clarified its position regarding LLCs. The question regarding Form 1099 filing requirements for business entities that pay more than $600 to an LLC has been one which has been asked of us numerous times. We now have an answer in the form of Chief Council Advice 201447025.
The question is relevant because an LLC may elect to be a corporation for federal income tax reporting purposes. Payments of $600 or more made to corporations or partnerships whose partners are all corporations are not required to be reported on Form 1099. If an affirmative election is not made to be a corporation, the LLC is classified as a partnership or a disregarded entity and a Form 1099 is required if payments of $600 or more have been made.
The Chief Council Advice concluded that unless the entity filing the Form 1099 has proof that the LLC made a positive election to be taxed as a corporation or has proof that all partners are corporations, a Form 1099 is required. The Chief Council Advice mentioned the following as proof:
- The Form 8832 entity election for a corporation
- For a partnership, all of whose partners are corporations, a certificate from the LLC stating that each member of the partnership is a corporation.
Taxpayers sending Forms 1099 may determine that it is easier to send LLCs a Form 1099 rather than consuming valuable time obtaining proof of tax status of each LLC. This is especially true since the proof should be retained and inquiry should be made each year since an LLC’s tax status may change.
We hope this memo is helpful. Please keep us in mind if you have the opportunity to refer a potential client. We welcome the opportunity to present our firm to new clients.
Sandy and Katie
Bull & Associates
Disclaimer: The above discussion is a summary that does not include all the rules and possible variations of events. It is provided solely for general information. Consult a tax professional before making decisions on this topic. If you prefer not to receive these informational comments, please let us know.