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No 1099s issued, if IRS discovers situation, who pays penalty Association or Management company

Started by RogerJ16 replies • 248 views

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RogerJ1 (Texas)
Posts: 550
Posted:
Previously self-managed POA never issued 1099s. It had several contractors who received over $600 in a year, so it should have done so. Now that POA has a management company that is handling the accounting. If it continues to not issue 1099s, and the IRS ever discovered the situation, I assume the IRS would penalize the Association.

If that were to happen, should the management company have to reimburse the Association for such penalties while it was handling the accounting? I assume there would be no legal requirement for it to do so.
PatJ1 (North Carolina)
Posts: 568
Posted:
Are the contractors that were paid incorporated?
BenA2 (Texas)
Posts: 1,273
Posted:
The IRS is going to penalize the taxpayer (HOA) regardless of whose fault it is. If the management company is intentionally violating the law, then I would hold them responsible, but that may mean taking them to court. If the HOA knows the management company is not following proper procedure and keeps them, then shame on the HOA. You cannot look the other way and then hold them accountable if things go wrong.

Are you sure they are not following the law? You do not always have to issue a 1099. For example, if the contractor is an LLC or otherwise incorporated, a 1099 is not required.
RogerJ1 (Texas)
Posts: 550
Posted:
Quote:
Posted By BenA2 on 05/12/2022 7:27 AM
The IRS is going to penalize the taxpayer (HOA) regardless of whose fault it is. If the management company is intentionally violating the law, then I would hold them responsible, but that may mean taking them to court. If the HOA knows the management company is not following proper procedure and keeps them, then shame on the HOA. You cannot look the other way and then hold them accountable if things go wrong.

Are you sure they are not following the law? You do not always have to issue a 1099. For example, if the contractor is an LLC or otherwise incorporated, a 1099 is not required.

Yes. Individual contractors. Attorneys biggest expensive and unless the IRS has changed rules, businesses must issue 1099s to attorneys regardless of the Attorneys corporate status - special requirement I guess the IRS does not trust lawyers.

Also, as I understand it LLCs are a gray area. 1099s required unless they file as C S corps. So it would be prudent to issue 1099s to LLCs.

MichaelT21 (Arkansas)
Posts: 501
Posted:
The current IRS requires 1099s be issued to virtually all vendors of any type. I am not sure if there still is a threshold or not, but virtually every HOA vendor gets issued a 1099 per current law.
RogerJ1 (Texas)
Posts: 550
Posted:
Quote:
Posted By MichaelT21 on 05/12/2022 10:30 AM
The current IRS requires 1099s be issued to virtually all vendors of any type. I am not sure if there still is a threshold or not, but virtually every HOA vendor gets issued a 1099 per current law.

$600 is the general threshold. There are some exceptions if paid via credit card - I assume that is data the IRS already gets is why it is an exception.

The Board has been told repeatedly to do, usually at every annual meeting. The Yahoos opine they do not. Their reasoning spreads from being a non-profit to revenues under $50K. I and others have shown IRS publications refuting every excuses that clearly shows the Association needs to issue. The Board will then say it does not agree or just shrug shoulders type responses.

It can get very expensive. The minimum penalty is $200 per missed 1099 and it can be higher if the IRS deems it a larger problem or done intentionally - being told repeatedly, if the IRS learned, might cause the later view. There is no cap to how high it can be other than total penalty cannot exceed $500K in a year. Also, if no tax identification information from a contractor, you are supposed to with hold 24% for taxes. When a company does not issue a 1099 and does not obtain tax information, the IRS can imply the withholding was done and bill the company for that amount plus interest. So say you paid $5K to a contractor, issued no 1099 and obtained no tax information from that contractor. The IRS can deem the services were really $6578.95, implying $1578.95 was withheld which the Association owes plus interest.

So the longer it goes the bigger the fallout could be. But again, the response is "no we do not have to do that." I was hoping a management company would force the Boards hand but does not look like the case, therefore wondering if this loss every happens, can the Association recoup anything from the management company.

SheliaH (Indiana)
Posts: 6,964
Posted:
Well, the board directs the property manager, so if these folks say they don't have to, they should be able to tell you where they got this information. For example, if the association has an accountant, it would appear that person should weigh in on this issue. By the way, you might want to get a copy of the management company contract and read it yourself to see exactly what the property manager is supposed to do. If there's nothing in there about the company filing taxes, who's doing it? Once you find out, ask him or her. If you need to get an opinion from a tax accountant, do it.

You can keep going back and forth with the board on this issue - or you and your neighbors can rally together and take steps to sack this board before ALL OF YOU wind up facing a special assessment that will pay the IRS assorted tax penalties from this. The question now is whether you and your neighbors will step up and do what's necessary.


If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

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