SR Client Question: Do I issue a Form 1099 to a law firm collecting fees for my medical practice?
When a medical practice or other business engages, on a contingent basis, a law firm or other third party to collect outstanding fees or invoices on its behalf, there are two different tax code sections that are relevant.Assuming that the law firm or third party will charge for any out-of-pocket costs and also retain a certain percentage of the amounts collected, and will directly receive the settlement checks and disburse the net remaining proceeds to the client, the gross settlement proceeds paid to the third party by the payor will be reported on two different Form 1099s, both issued by the payor, not the medical practice or other business:
a) Code Section §6041; The person or company paying these bills, in the course of a trade or business, must furnish a Form 1099 MISC to the medical practice or other business reporting the full amount of the payment including any legal fees or out-of-pocket costs.
b) Code Section §6045(f): The person or company paying these bills, in the course of a trade or business, must also furnish a Form 1099 MISC to the law firm or third party retained by the medical practice or other business. This form must report the full amount of the payment made to the law firm or third party, including their fees and other out-of-pocket costs charged.
For more information on issuing Form 1099s to third party contractors or vendors, please contact your ShindelRock tax professional.