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There has been considerable discussion among auctioneers about the IRS Form 1099. Much of this recent discussion is a result of the 2010 Patient Protection and Affordable Care Act’s additional requirements for 1099 reporting, and more recently the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 which largely repealed these reporting requirements.
As I frequently teach auctioneer continuing education, I am often asked about this particular issue, as well as more general 1099 reporting requirements for auctioneers. While I am not an accountant nor attorney, I have consulted with both and it appears the 1099 issue for auctioneers is not terribly complex.
My primary recommendation for any auctioneer is to consult an accountant and/or attorney regarding current laws, rules and interpretations of any 1099-related issues. The IRS Form 1099, which is considered an “information return,” is issued for a wide variety of purposes — and penalties for not filing can be be as much as $1.5 Million.
It seems for most auctioneers, the major issues concerning 1099’s are as follows:
- Auctioneers should issue a 1099 to any independent contractor (earning $600 or more in a calendar year) who has provided service to the auctioneer in the course of the auctioneer’s trade or business.
- Auctioneers should expect to receive a 1099 from anyone who the auctioneer has provided service (earning $600 or more in a calendar year) in the course of the service-recipient’s trade or business.
It is important to note here that corporations are generally exempt recipients.
Currently, there seems to be two particular questions regarding these requirements.
1. If an auctioneer secures a clerk, cashier, ringman or other staff for a particular auction, and the auctioneer’s client pays those staff directly ($600 or more in one calendar year,) then is the auctioneer not required to issue a 1099 to those staff?
- This has been suggested as a “work around” on the 1099 reporting requirement — and it may well be. However, if the auctioneer actually pays the staff instead of the client, or the auctioneer pays the staff less (or more) than the client owes the staff, or if the payment is given to the auctioneer to be then distributed to the staff, then this may not relieve the auctioneer from reporting this income.
2. Do auctioneers have to issue a 1099 to consignors if the auctioneer provides $600 or more in net proceeds to that consignor in a calendar year?
- While the 2010 Patient Protection and Affordable Care Act seemed to suggest the answer was, “Yes,” the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 seems to suggest, “No.” That is, if the answer was, “No” prior to the 2010 Patient Protection and Affordable Care Act.
- Most tax professionals say that prior to 2010, auctioneers were not required to issue 1099’s to consignors, as in the case of personal property, the exemption for “merchandise” was clear. However, it is worth noting that the argument that the proceeds are actually coming from the buyers (and not the auctioneer) is less defensible as most auctioneers, at minimum, possess those funds at least temporarily.
- Relatedly, a real property auction typically would involve the issuance of 1099’s if a real estate broker/salesperson/auctioneer was involved. More so in a real property transaction, the title company or escrow agent would issue 1099’s to all parties material to the transaction and if a auctioneer is an independent contractor with a broker, a 1099 would typically be issued by the broker.
Lastly, two important aspects of 1099’s:
- If the question is, “Should I send one out or not?” Send one. You won’t get penalized for issuing a 1099 report to someone who didn’t need one.
- A 1099 itself doesn’t mean that taxes are owed. As we mentioned, the 1099 is an “information return,” and someone’s own tax circumstances dictate tax liability.
Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. His Facebook page is: www.facebook.com/mbauctioneer. He serves as Adjunct Faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.