New Rule for 1099-S and Over $10,000 Cash Reporting
Public Law 104-168 was signed by the President on July 30, 1996. The law amends the requirements for the settlement agent reporting receipt of cash in excess of $10,000 (IRS Form 8300) on real estate sales (1099-S).
The law requires the settlement agent to include the phone number of the information contact of the settlement agent in the copy of the 1099-S furnished to the seller and in the copy of the Form 8300 furnished to the person paying cash in excess of $10,000. The phone number must provide direct access to an individual who can answer questions about the form.
The law says that it applies to statements required to be furnished after December 31, 1996. The IRS will not penalize the failure to add the phone number to the 1996 Form Reporting.
Charge for 1099-S
New public law 104-188 (H.R. 3448) was signed by the President on August 20, 1996. This law still prohibits a "reporting person" (generally the settlement agent) from making a separate charge for 1099-S reporting. This law says that it does not "prohibit the real estate reporting person from taking into account its cost of complying with such requirement in establishing its charge (other than a separate charge for complying with such requirement) to any customer for performing services in the case of a real estate transaction." This law is effective as of November 11, 1988 (the original date prohibiting a separate charge for 1099s). The law does not allow a separate charge for 1099 reporting or allow reference to a charge for 1099 reporting on the settlement statement.
1099-S REPORTING (Section 6045(e)IRC; 26 CFR 1.6045-4; and 55 FR 51282)
Reportable Sales: The reporting person must report sales or exchanges of real estate. Reportable real estate includes commercial, agricultural, residential, improved and unimproved land, condominiums and cooperatives. Reporting applies to fee simple, life estates, reversions, remainders, easements, time-shares and leaseholds (if the remaining terms and options of the lease, easement or other interest are at least 30 years). Reporting does not apply to financing, gifts (if no loan assumed or taken subject to), foreclosures, deeds in lieu of foreclosure or transactions under $600 (only where the total proceeds or sales price does not exceed $600; otherwise reporting is required even if the allocation to a seller is less than $600).
Exempt Sellers: Reporting is not required if the seller is a corporation, a governmental unit, or an exempt "volume transferor" (at least 25 sales to 25 purchasers during one of last two years or current year). A reporting person may assume a seller is a corporation if the seller's name contains the words "Incorporated," "Inc.," "Corporation," Corp.," "Insurance Company," "Reinsurance Company," "Assurance Company," or "P.C." (but not "Company" or "Co."), or if the transfer or loan documents clearly show a corporation.. Reporting is required if the seller is an individual, trust, limited liability company, partnership or joint venture. If there are multiple sellers and some are exempt, the reporting person must report as to the nonexempt sellers only.
Certificate of Exempt Volume Transferors: The reporting person must receive a certification of exempt status from an exempt volume transferor in order to avoid reporting. An example of a Certification is The name of the Transferor is ______. The address of the Transferor is ______ [permanent address if individual; principal office if a corporation or partnership; permanent address or principal office of a fiduciary in case of trust or estate]. The taxpayer identification number of the Transferor is _____. The reportable real estate not reported by virtue of the exempt status of the Transferor is (description) . [check one or more]:
- Transferor has sold or exchanged during the either of the prior two calendar years,
- Transferor previously sold or exchanged during the current calendar year,
- Transferor on the date of closing expects to sell or exchange during the current calendar year, at least 25 separate items of reportable real estate to at least 25 separate transferees and each such item, at the date of closing of such item was or will be held primarily for sale or resale to customers in the ordinary course of a trade or business.
Under penalties of perjury, I certify that this Certification and the facts stated herein are correct. ____________ [signature of Transferor] ______ [Date] [to be retained by reporting person for four calendar years following year of execution for each transaction for which secured]
Who Must Report: The reporting person (required to file the 1099-S) is the first of the following:
- The settlement agent on the HUD-1 or the person who prepares any other closing statement.
- The attorney for the buyer if the attorney is present at the delivery of the buyer's note or significant portion of the cash payment, or if the attorney prepares the documents transferring title.
- The attorney for the seller if the attorney is present at the delivery of the buyer's note or significant portion of the cash payment, or if the attorney prepares the documents transferring title.
- The title or escrow company that disburses the most significant proceeds.
- The mortgage lender that advances new funds in connection with the sale.
- The seller's broker.
- The buyer's broker.
- The buyer.
- A designation agreement of one or more parties to the closing may designate the settlement agent, disbursing title company or escrow company, attorney for seller or buyer, or mortgage lender as the reporting person for the transaction.
Multiple Sellers: The reporting person must separately report on each seller, unless the only transferors are spouses. The reporting for spouses may be made on either spouse. If there are multiple sellers, the reporting party must report the entire gross proceeds on each seller if the sellers do not allocate the "gross proceeds" (sales price, not net proceeds). The reporting person must request that multiple sellers allocate the gross proceeds. If the sellers disagree on the allocation, or do not specify the allocation, the reporting person must show the total gross proceeds on each seller's report. If one or more sellers respond with an allocation and the responses do not conflict, the reporting person must use the proposed allocation for reporting on all sellers. The reporting person may, but is not required, to rely on an allocation received after closing and before reporting is required.
Required Information: The reporting person must secure the following information:
- Name, address, and taxpayer identification number (TIN) of the seller.
- General description of land (e.g. complete address).
- Date of closing.
- Entire gross proceeds (generally the contract sales price including loans assumed, taken subject to or created, not just cash paid) in the transaction or allocation of gross proceeds to that seller.
- Whether the seller receives property or services other than cash or cash equivalent.
- Whether the seller receives contingent payments that cannot be determined with certainty (such as contingent interest, cash flow or shared appreciation, without limitations on the contingent payment).
- The reporting person's name, address, and TIN.
- The portion of real property tax (not a special assessment such as paving, sewer or sidewalk) already paid or paid at closing to taxing authorities that is imposed on the buyer of a one-to-four family residence (these should be the amounts on lines 406 and 407 for the seller on the HUD-1).
- Any other information required by the Form 1099 or instructions.
- The reporting person must solicit the TIN by language such as "You are required by law to provide [insert name of reporting person] with your correct taxpayer identification number. If you do not provide [insert name of reporting person] with your correct taxpayer identification number, you may be subject to civil or criminal penalties imposed by law." The solicitation must include space for the name, address, and TIN of the person. The certification must be substantially "Under penalties of perjury, I certify that the number shown on this statement is my correct taxpayer identification number." A copy of Form W-9 complies. These requirements may be provided on a modified HUD-1. If a seller refuses to provide the TIN after request, the reporting person does not violate the law if the reporting person's overall results during the year do not reflect lack of good faith.
Multiple Assets: If the sale or exchange includes land and other assets, the sales price for both is the gross proceeds for reporting.
Contingent Payments: If the sale or exchange includes contingent payments (such as contingent interest, cash flow or shared appreciation), the reporting person must report the "maximum determinable proceeds" (maximum payments) as the gross proceeds. If there is no maximum, the reporting person must note on the 1099-S that the maximum payments cannot be determined with certainty. For example, if the contract provides for payment of 10% of cash flow over five years, with a minimum payment of $500,000 in cash flow and no maximum, then the maximum determinable proceeds is $500,000. If the contract provides for a minimum of $500,000 and a maximum of $700,000 in cash flow, then the maximum determinable proceeds is $700,000.
Installment Contracts: An installment contract is reportable when the contract is signed, not when the contract is paid off. The transaction involving a later refinance and payoff of the contract (with a deed to the purchaser) is not reportable.
Relocation Company Sales: A deed in blank by a transferred employee to a real estate transfer company (a corporation) for a fixed price at that time is a reportable transaction. The later conveyance by the real estate transfer company, which then receives the proceeds of the new sale is not reportable since the transfer company is an exempt corporation.
Reporting to IRS: The reporting person must file the file the returns with the IRS after December 31 of the year of closing and by February 28 of the following year. The reporting person must use magnetic media to report, unless filing fewer than 250 returns during the year or unless the IRS grants a waiver of magnetic media reporting because of hardship.
Copy to Seller: The reporting person must furnish the seller with a written statement of the information shown on the return (which must include the phone number of the information contact of the reporting person). The reporting person may comply by giving the seller a copy of the completed 1099, a substitute, or a Closing Statement that satisfies the regulations. The reporting person may give the seller the copy in person at closing or may mail the copy before February 1 of following calendar year. The statement must have the legend of the Form 1099 or say "This is important tax information and is being furnished to the Internal Revenue Service. If you are required to file a return, a negligence penalty or other sanction will be imposed on you if this item is required to be reported and the IRS determines that it has not been reported." This language may be included on a modified HUD-1 used as a substitute 1099 furnished to the seller. The statement is furnished to the seller if given to the seller in person at closing or thereafter, or if mailed to the seller's last known address.
No Charge: The reporting person may not make a separate charge for 1099-S reporting.
Foreign Persons: Reporting applies even if the seller is a "foreign person" subject to reporting and withholding under FIRPTA (Foreign Investment in Real Property Tax Act). Reporting applies even if the seller sells the land at a loss and even though the sale or exchange may not be taxable (such as on some exchanges and sales of principal residences).
Reporting Cash Over $10,000 (Section 6050I, IRC; 26 CFR 1.6050I-1; 56 FR 57974; 58 FR 33763)
Required Reporting: If your business receives more than $10,000 in cash in the same transaction (such as a sale of land) or related transactions, you must file IRS Form 8300. This form will include the name, address and TIN of the person from whom cash was received, the amount of cash, and the date and nature of the transaction.
Verify Identity: You must verify the identity of the person paying the money (e.g., for an alien, the passport, alien identification card or other official document; for other persons, driver's license or other identification used for accepting checks).
What is Cash: Cash subject to reporting includes coin or currency of the U.S. or any other country, U.S. Notes, and Federal Reserve Notes.
Aggregate Multiple Payments in 24 hours: All cash received from the same party within a 24 hour period must be aggregated; if the total exceeds $10,000, you must file Form 8300.
Aggregate-Related Transactions: All cash received in a period exceeding 24 hours must be aggregated if you have reason to know that these are related transactions. For example, multiple deposits of cash from the same party relating to the same purchase aggregating over $10,000 should be reported.
Checks Used to Avoid Reporting (Structuring): Noncash "instruments," such as cashier's checks (e.g., treasurer's checks or bank checks), bank drafts, traveler's checks, and money orders that are $10,000 or less must be aggregated and reported if you know the "instruments" are being used to avoid reporting ("structuring"). For example, if the buyer tenders five cashier checks of $3,000 each, you should file Form 8300. If the buyer offers $20,000 cash, and you require a cashier's check and the buyer then offers two cashier's checks of $10,000 each, you should file Form 8300.
Collecting Installments: If you receive cash installment payments on a transaction or related transactions, you must add the initial payment and subsequent payments during the last 12 months until the total exceeds $10,000. You must then file Form 8300. If you receive subsequent cash payments exceeding $10,000 during any 12-month period, you must report again with Form 8300. You must file Form 8300 within 15 days after the date that the cash payments exceed $10,000.
Time for Reporting and Copies: You must file Form 8300 by the 15th day after the receipt of reportable cash. You must keep a copy of the Form for five years after you file. You must provide a copy of the report to each person named on the form by January 31 of the following year. The copy must include the name and address of your business, the phone number of the information contact at your business, the total amount of reportable cash, and a legend statement that you furnished the information to the IRS.
Alternatives to Cash: Many persons refuse to accept cash and instead require wires, cashier's checks or certified checks. They consider the risk of theft, counterfeit funds and filing of Form 8300 to be burdensome. If you do accept cash, you should consider a written compliance program and an officer in charge of compliance.
FIRPTA (Foreign Investment in Real Property Tax Act) Reporting (Section 1445, IRC; 26 CFR 1.1445-1, et seq.; and 51 FR 46620)
What Transactions Covered: This law applies to interests in real property, including fee simple, co-ownership interests, leasehold, time shares, life estates, remainders, reversions, and rights to share in appreciation. The law does not apply to an interest held solely as a creditor or to a grant of an option, but does apply to an assignment or exercise of an option.
Duty of Buyer to Withhold: This law requires any person who acquires real property from a foreign person to withhold a tax of 10% of the amount realized by the foreign person. It does not matter whether the seller is profiting from the sale. It does not matter whether the transaction is taxable. The required withholding amount may exceed any proceeds payable to the selling foreign person. If the purchaser fails to withhold, the purchaser may be liable for that amount, plus penalties and interest.
Multiple Sellers: If the foreign person owns an undivided interest in the land, the percentage of the "amount realized" by the foreign person is determined by allocating the amount realized based on the contribution. If spouses own the land, the wife and husband are deemed to have contributed 50% each.
Report Amount Realized: The "amount realized" by the foreign person is the cash paid, fair market value of other property transferred, and outstanding amount of liability assumed or taken subject to. The "amount realized" is generally the contract price.
Who is a Foreign Person: A "foreign person" is generally a nonresident alien individual, foreign corporation, foreign partnership, foreign trust, or foreign estate, but not a resident alien individual.
Buyer Must Withhold and Report: The purchaser must report and pay the 10% withheld by the 20th day after the transfer. The purchaser must use IRS Forms 8288 and 8288A to report at the Internal Revenue Service Center, Philadelphia, PA, 19225.
Application for Withholding Certificate: If an application for a withholding certificate is submitted by the purchaser to the IRS on or before the day of the transfer, the purchaser must withhold 10% of the amount realized, but does not need to report and pay to the IRS until the 20th day after the IRS's final determination (the date the IRS mails the withholding certificate or the denial). If the seller submits the application for withholding certificate on or before the transfer, the seller must provide notice to the purchaser and the purchaser must withhold 10%. The IRS will send a copy of the withholding certificate or denial of withholding certificate to the purchaser.
Buyer May Rely on Certificate: Withholding and reporting is not required if the seller is not a foreign person. The purchaser may rely on a Certificate of non-foreign status by the seller. The purchaser must retain the Certificate for five taxable years following the taxable year of the sale.
Sample Certificates: The following are sample Certifications: Individual Transferor, "Section 1445 of the Internal Revenue Code provides that a transferee [buyer] of a U.S. real property interest must withhold tax if the transferor [seller] is a foreign person. To inform the transferee [buyer] that withholding of tax is not required upon my disposition of a U.S. real property interest, I, [name of transferor], hereby certify the following:
- I am not a nonresident alien for purposes of U.S. income taxation;
- My U.S. taxpayer identifying number [Social Security number] is ________ ; and
- My home address is: _______________.
I understand this certification may be disclosed to the Internal Revenue Service by the transferee and that any false statement I have made here could be punished by fine, imprisonment, or both. Under penalties of perjury I declare that I have examined this certification and to the best of my knowledge and belief it is true, correct, and complete. [Signature and Date]
Entity transferor. "Section 1445 of the Internal Revenue Code provides that a transferee of a U.S. real property interest must withhold tax if the transferor is a foreign person." To inform the transferee that withholding of tax is not required upon the disposition of a U.S. real property interest by [name of transferor], the undersigned hereby certifies the following on behalf of [name of transferor]:
[Name of transferor] is not a foreign corporation, foreign partnership, foreign trust, or foreign estate [as those terms are defined in the Internal Revenue Code and Income Tax Regulations];
[Name of transferor]'s U.S. employer identification number is _________ ; and
[Name of transferor]'s office address is ___________________.
[Name of transferor] understands that this certification may be disclosed to the Internal Revenue Service by transferee and that any false statement contained herein could be punished by fine, imprisonment or both. Under penalties of perjury I declare that I have examined this certification and to the best of my knowledge and belief it is true, correct and complete, and I further declare that I have authority to sign this document on behalf of [name of transferor].
[Signature and date] [Title]
Knowledge of Foreign Corporation: If a purchaser knows that the seller is a foreign corporation, the purchaser may not rely on the Certification of non-foreign status unless the seller attaches a copy of the IRS acknowledgment of the corporation's election.
Knowledge of Falsity: A purchaser may not rely on the Certification of non-foreign status by the seller if the purchaser has actual knowledge that the Certification is false or has received notice from an agent of the purchaser or seller that the Certification is false.
Exception for Home Purchase: The purchaser is not required to withhold 10% of the "amount realized" if the purchaser is an individual who acquires the land for use as a residence and if the "amount realized "is $300,000 or less. The land is acquired for use as a residence if on the date of the transfer the purchaser has definite plans to reside at the land for at least 50% of the number of days that the land is used by any person during each of the first two 12-month periods following the transfer. No form is required to be filed with the IRS. If the purchaser does not reside at the land as required, the purchaser is liable for withholding unless due to circumstances that could not have been reasonably anticipated.
Buyer at Foreclosure: A purchaser at a foreclosure generally is required to withhold no more than the amount than would accrue to the foreign person in excess of the mortgage that is terminated. A grantee of a deed in lieu of foreclosure is generally not required to withhold if no consideration is given (other than the cancellation or release of personal liability on the debt) and if there is no other lien on the land.
Amount Withheld Pursuant to Certificate: A purchaser is not required to withhold or report more than the amount set forth in any withholding certificate issued by the IRS. Either the purchaser or seller may request the certificate at or before the transfer. The IRS must act on a request within 90 days after it is received.
Agent's Knowledge of Certificate Falsity: An agent of the seller or purchaser must provide notice to the purchaser if the agent knows that the certification of non-foreign status is false. A person is not a seller's or purchaser's agent solely by receiving and disbursing consideration, recording documents, clerical tasks, obtaining title insurance reports and reports on the condition of the land, or delivery of documents.
See IRS forms below: