Yes, Reporting Person, You Must Issue a 1099 to All Sellers

By Mikail Clark


            In the purchase of property in consumer and commercial transactions involving multiple transferors (e.g., tenants in common, joint tenants, or tenants by the entirety), many issues arise regarding the tax implications of such transactions.  One issue that commonly arises is whether the reporting person must issue a Form 1099-S (Proceeds from Real Estate Transactions) to each transferor in accordance with his ownership interest or whether he can simply issue a Form 1099-S to one of the transferors. While many reporting persons prefer to issue one Form 1099-S for ease in accounting, the law requires otherwise. 
            
            Generally speaking, in the case of multiple transferors of real estate, the “reporting person” (i.e., the person responsible for closing such as an attorney, title company, the mortgage lender, the seller’s broker, the buyer’s broker, the person acquiring the biggest interest in the property, or the person so designated by agreement of the parties)[1] “shall make a separate information return with respect to each transferor.”[2]

In addition, the reporting person “must request the transferors to provide an allocation of the gross proceeds among the transferors.”[3]  This request must be made on or before closing.[4]  Further, the reporting person must make a “reasonable effort” to contact all transferors.[5]  However, the reporting person may “rely on the unchallenged response of any transferor and need not make additional efforts to contact other transferors after at least one allocation (whether or not contained in a single response) is received.”[6]  Besides this exception, the reporting person “shall report the gross proceeds in accordance with any allocation received at or before the time of closing.”[7]

With respect to post-closing allocations received by the reporting person, the reporting person may, but is not required to, report gross proceeds in accordance therewith, but in no case can the reporting person report allocations received on or after the 1099 due date.[8]  If no gross proceeds are allocated to a transferor because no allocation or an incomplete allocation is received by the reporting person, “the reporting person shall report the entire unallocated gross proceeds (if any) on the return of information made with respect to such transferor.”[9]  Moreover, if the reporting person receives conflicting allocations from the transferors, “the reporting person shall report the entire gross proceeds on each return of information made with respect to the transaction.”[10]

Before you or your client agrees to be a reporting person, please make sure that you or your client understands the full nature and scope of such a designation. 

[1] See I.R.C. § 6045(e)(2).
[2] 26 C.F.R. § 1.6045-4(f)(1) (emphasis added).
[3] Id. § 1.6045-4(i)(5)(i).
[4] Id.
[5] Id.
[6] Id.
[7] Id.
[8] Id.
[9] Id.
[10] Id.

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