If we wanted to give one of our customer's employees a check for $700 just for being a good customer, would that be 1099 applicable?

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The situation you describe is a very unusual one.  A better approach would have been (or would be, if this has not transpired yet) for you to issue the check, which you originally describe to us as a discount, directly to your customer who bought from you, not to the employee who subsequently bought from the customer, and allow the customer to issue a discount to the employee.

However, we are concerned about the nature of this payment all together.

How are you recording this payment?  We recommend that you talk to your company’s legal advisor. It appears you are simply paying money to an individual for no clear reason, and the possibility is that the payment is for influence. Seek your legal advisor for guidance.

From the standpoint of a 1099, there is a rule of thumb: “when in doubt, report”—there is no penalty for filing a 1099 that was not required, but there is a penalty for failure to file a required 1099. But we urge you to contact the IRS directly at (866) 455-7438 and describe the situation in detail to them, and also urge you to talk to your legal advisor.

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