We are a governmental agency that has hired a law firm to collect delinquent county taxes, of which they keep a percentage. The law firm is providing a service but not paid directly by the county. Should this be reported on a 1099?

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Yes, the amount of the collection fee held back by the law firm is reportable. Though your agency has not actually cut a check, the money held by the attorney represents its fee, effectively paid by the county. Therefore, you should issue a 1099 for the amount withheld by the attorney for its fee. We confirmed this with the IRS, where we spoke with Ms. Sheeler, ID#1006489.

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