The requirements for preparing and filing information returns, such as Federal Forms 1099 and W-2, apply to all businesses, including Exempt Organizations. In fact, on page 5 of the Form 990, Return of Organization Exempt from Income Tax, there are questions that must be answered as to the number of Forms W-2, W-2G and 1099 that the Organization has filed. Most people are familiar with the Form W-2, as they anxiously await this form from their employer each year, to file their individual income tax returns. But some Organizations are also required to file Forms W-2G. For example, if the Organization conducts Bingo games, they are required to issue a Form W-2G to any person who was paid more than $1,200 during the year, or if the Organization paid out proceeds from a 50/50 raffle, or similar sweepstakes, in the amount of $600 or more, they are also required to issue a Form W-2-G.
The Form 1099, series of information returns, also applies to Exempt Organizations. Some of the common Forms 1099 are as follows:
- Form 1098-C is issued to donors that contributed a motor vehicle, airplane or boat to the Organization.
- Form 1099-MISC is issued for payments made during the year, totaling $600 or more, for services rendered to the Organization, by any business or individual, that are not treated as its employees and they are not incorporated. This also includes payments to a landlord for rental payments.
- Form 1099-R is issued for payments made to an employee receiving a distribution from the Organization’s retirement plan.
Current IRS Regulations require that information returns be issued to all non-corporate businesses that provide goods or services to the Organization aggregating $600 or more during the year. The IRS recently concluded under Reg. 1.6041-3 that LLC’s are not corporations and should be issued a Form 1099. The due date for providing recipients with these information returns is January 31st of each year. The IRS recently increased the penalty from $50 to $250 per information return, with no maximum on the penalty amount for non-compliance. Best practices suggest that Organizations obtain a copy of a Form W-9 from each non-employee that they make payments to, including corporations. It’s only a matter of time before the IRS lowers the reporting threshold to an amount below $600 and also removes the corporate exemption.
The reporting requirements are complex. If your Organization needs assistance in complying with the IRS Regulations, please contact our office at (908) 782-7900 or email firstname.lastname@example.org.