1099-S Filings: New Law

Attention real estate lawyers! Federal deficits have forced the U.S. government to find new sources of revenue. On Sept 27, 2010, Congress passed the Small Business Jobs Act (H.R. 5297).

For your purposes, here’s what the new law means. The IRS now assesses a Tier-3 $100 penalty per 1099 form for any mismatches in the seller’s tax ID number and name. For ten erroneous forms, that’s a whopping $1,000 penalty – something none of us should have to incur.

Mismatches can happen for any number of reasons – none of which are egregious. Maybe you have a wrong name on file. Maybe you’re inadvertently using the seller’s DBA name. Maybe you’ve inserted an extra space, extra punctuation, or the like. Nothing earth-shattering – but so long as the IRS catches your error, it’s likely to enforce the rule, and collect its fee. (For more information, see IRS Publication 1586.)

So what can you do to avoid the penalty? Prior to closing, always obtain the Seller’s TIN number. You can simply print a “1099-S Substitute Form” in your Easy HUD program, and have the seller sign it at the closing.

Alternatively, you can also use a W-9 form. Securing a TIN number in this
way establishes reasonable care, and should get you excused from any penalty. Remember to keep signed substitute forms or W-9 forms in your records for
four years.

Note that obtaining the Seller’s TIN only protects you from a wrong TIN/Name
provided by the seller. Mismatch errors are more likely to occur as the result of a seemingly innocent typo – particularly if you fill in your IRS forms manually, or re-type it for an accountant or third-party provider.

All of these points to another reason to use Easy HUD’s electronic 1099-S Filing Service. With our electronic 1099-S reporting Service, you can submit your 1099-S form immediately after the closing, transfer the data seamlessly (reducing the probability of a typo), and receive instant confirmation.

Our $10 per filing fee covers both the IRS and seller reporting. Enrollment in the service is free. And in penalty savings alone: it more than pays for itself.

With our popular value-added post-closing services such as 1099-S Filing and Lien Release Tracking, we eliminate cumbersome work – and penalties that can add up.

For more information on our HUD software program and lien release tracking services, call Easy Soft at 800.905.7638.