Ask the taxgirl: Forms 1099 and Estates

Taxpayer asks:
My father my grandmother and (unofficially) I, are administers of a simple (non trust) estate for my recently deceased Uncle. the estate has hired an attorney, a funeral home, a grave tending service, and a guy to help clean the house he lived alone in, and sell personal property contained in the house. All of these payment exceed $600. Do i neeed to get each contractor to fill out a w-9 and then submit a 1099 to the IRS-and to the payee?

This is the relevant statute and reuglations and why I dont think we need to send 1099’s as part of the estate.

26 USC section 6041:

(a) Payments of $600 or more.–All persons engaged in a trade or business and making payment in the course of such trade or business to another person, of rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable gains, profits, and income (other than payments to which section 6042(a)(1), 6044(a)(1), 6047(e), 6049(a), or 6050N(a) applies, and other than payments with respect to which a statement is required under the authority of section 6042(a)(2), 6044(a)(2), or 6045), of $600 or more in any taxable year, or, in the case of such payments made by the United States, the officers or employees of the United States having information as to such payments and required to make returns in regard thereto by the regulations hereinafter provided for, shall render a true and accurate return to the Secretary, under such regulations and in such form and manner and to such extent as may be prescribed by the Secretary, setting forth the amount of such gains, profits, and income, and the name and address of the recipient of such payment.

relevant IRS regulation:

26 CFR 1.6041-1 Return of information as to payments of $600 or more.

(a) General rule–(1) Information returns required–(i) Payments required to be reported. Except as otherwise provided in §§ 1.6041-3 and 1.6041-4, every person engaged in a trade or business shall make an information return for each calendar year with respect to payments it makes during the calendar year in the course of its trade or business to another person of fixed or determinable income described in paragraph (a)(1)(i)(A) or (B) of this section. For purposes of the regulations under this section, the person described in this paragraph (a)(1)(i) is a payor.

(A) Salaries, wages, commissions, fees, and other forms of compensation for services rendered aggregating $600 or more.

(B) Interest (including original issue discount), rents, royalties, annuities, pensions, and other gains, profits, and income aggregating $600 or more.
(b) Persons engaged in trade or business–(1) In general. The term “all persons engaged in a trade or business”, as used in section 6041(a), includes not only those so engaged for gain or profit, but also organizations the activities of which are not for the purpose of gain or profit. Thus, the term includes the organizations referred to in section 401(a), 501(c), 501(d) and 521 and in paragraph (i) of this section. On the other hand, section 6041(a) applies only to payments in the course of trade or business; hence it does not apply to an amount paid by the proprietor of a business to a physician for medical services rendered by the physician to the proprietor’s child.

The phrase is thus never defined by statue or by regulation except to say that non profits count (like 501c’s and others). It also says why a doctor is not given a 1099 when the owner of a business goes to the doctor. This is the reason.

I don;t think there is any legal reason to think that an estate is what is being meant here. I would think that an estate, which is a temporary entity that only exists in order to distribute assets of the decedent-is not “engaged in a trade or business”

What do you think?

Taxgirl says:
Wow. That’s a well researched question! And I’m going to agree with you.

My reason is that while an estate is a separate taxable entity, I think that it continues the “life” of the decedent. Unless, the estate is actively engaged in a trade or business, then I think that it’s acting in the shoes of an individual. In that case, and under these circumstances as you’ve outlined, no form 1099 needs to be issued (there are some circumstances, such as payments to an administrator for services that are treated differently).

If any of my colleagues think differently, please chime in!

For more information about form 1099s, see my prior post about various forms.

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

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