IRS Proposed Rules on Attorney Reporting

May 28, 2002

May 28, 2002

Real Estate Transaction Exception Provided in IRS Proposed Rules on Attorney Reporting

Ann vom Eigen, ALTA Legislative Regulatory Counsel

The IRS and the Treasury Department have amended and reproposed regulations implementing the Taxpayers Relief Act of 1997 requiring reporting on payments to attorneys. The regulations are expected to become effective no earlier than 2004. [May 17, 2004 REG-126024-01] [pdf]

Major provisions of the proposed regulations affecting the real estate industry include

New Real Estate Exception

There is no reporting required for payments made to an attorney in the attorney?s capacity as the person responsible for closing a real estate transaction.

New De Minimis Threshold

In order to reduce the compliance burden associated with the reporting requirement, the proposed regulations adopt a $600 annual threshold for reporting payments to an attorney.

Corporate Reporting Required

Reporting is required even for attorneys who are incorporated. In the case of a payment by check, the attorney must be named as a sole, joint, or alternative payee for the payment to be reportable.

Payor is Defined

A payor is defined as a person who makes a payment as an obligor, or the obligor?s insurer or guarantor. This definition was adopted in lieu of the definition under IRC section 6041 which only requires payments made on behalf of a third person if the one physically making payment exercises management or oversight in connection with, or has a significant economic interest in, the payment.

Aggregate or Separate Payment Reporting

Payors may file either one Form 1099-MISC that aggregates annual payments or separate Form 1099-MISC for each payment to an attorney.

Backup Withholding

Backup withholding is required if the attorney does not provide their taxpayer identification number (TIN).

Contact ALTA at 202-296-3671 or

North American Title Insurance Company (NATIC) is a seasoned title insurance underwriter, helping title agents to achieve their individual business goals for more than 50 years. Today, the company conducts real estate settlement services in 39 states and the District of Columbia through a network of experienced, independent agents.