Discussion:Do owners of residential or commercial real estate have to issue 1099's to subcontractors?

So, reader, if your client has two residential rental properties and one commercial property, which you list the accounting data on Schedule E, do you prepare 1099's for his/her subcontractors?

Hope I haven't been seeing this wrong all of these year . . .

On another note, I suppose that you could file fake w-2's and 1099's to make an EIC mill. Especially since filing the information returns gives the imprimatur of authenticity

The retail tax stores already have a big enough problem with people printing up fake w-2's to scam an instant refund loan.

Any CA CPAs out there ever been in an audit where rental deductions were disallowed by the FTB because a landlord did not issue a 1099? Just curious.

Regardless, I am going to advise my three clients who have several properties to start providing me with the 1099 information. But not the ones who have one property - perhaps they really don't have a trade or business with just one rental property.

Anyway, any comments appreciated.

I would almost like to take bets that no one is going to reply that in audit, the FTB disallowed a legitimate rental deduction because a 1099 was not issued.

I don't see any such box on the personal form 540 returns. I would deduct even if I didn't do 1099's. But, the rules do say they should be prepared so you might as well prepare them so you won't have to worry about the $50/piece penalty.

As Ken states above - the FTB has been very up front on this. They will deny the deduction it a 1099 was not issued when it should have been.

Regardless, I have notified my clients with multiple real estate properties that we should start thinking about it, to my dismay.

In the Spidell's CA Taxletter of Dec 2006 - I know you must also read this as a CA CPA - it brings up CA Revenue and Taxation Code 24447. That section states that "the FTB "may" disallow a deduction to a corporation for amounts paid as remuneration for personal services if that corporation fails to report the payments on a W-2 or 1099." This article also states that there have been "several subscribers to Spidell's California Taxletter have reported that auditors have made sec 24447 adjustments." Again - this is info being credited to Spidell's California Taxletter.

While someone who has a commercial rental property is probably not renting out this property as a corporate entity, I do not necessarily believe that the FTB may not carry this disallowing a deduction to an individual who is carrying on a trade or business such as a rental. I know that I do not want to be on the hook for informing a client that they should not be issuing 1099's when the form instructions state that they should. I am open to your thoughts on this.

So it depends.

Doesn't mean you shouldn't file, and some states may be very different.

Penalties for intentional disregard of these rules include a penalty equal to 10% of the amount required to be reported. See Sec. 6721.

And on the other side, I've never had a self-employed client in the trades who came in with a 1099 from a small landlord. In fact, most of them don't even get 1099s for work performed for large RE companies. They just submit an invoice and get paid. They only get 1099s if they sub out to a general contractor or work as an independent for a company (eg a S-E HVAC guy who get's sent out by Sears or a plumbing contractor).

So again, are you sure? Got any citations?

David H (pardon me if this is double posted -- I thought I posted it before but can't find it . .. )

David H