1. If the deal closes before 12/31/2015, do we need to combine the amount of the 2015 payments to our vendors with the payments made by the new owner to determine if a 1099 reporting is needed? I.e., if we paid a vendor $301 for the year and the new owner has paid them $325, together the threshold for $600 has been met, so is a 1099 needed?
2. Does our company having a different Federal ID number than the new owner change that decision?
3. If we both retain separate Federal ID numbers, but we are a combined entity from a reporting perspective, do we still consolidate our payments for the threshold determination and 1099 reporting? Does each Federal ID number then report its respective payments to that vendor under its own Federal ID number?
4. Or do we do separately calculate the dollar threshold and report separately until we have one common federal ID number?
5. Do we report separately until the deal closes? So if the deal closed on 10/31, would all payments made by our company up until then be reported under our Federal ID number, and everything after 10/31 would then be combined with the new owner?
A. See the IRS General Instructions for Certain Information Returns, page 2, “Successor/predecessor reporting.” According to these instructions, if certain requirements are met, the successor and predecessor may agree that the successor will assume all or some of the predecessor’s reporting responsibilities. So the new owner can file just one form 1099 for each recipient, combining both companies’ reportable amounts. If both parties are in agreement on this, then your company does not have to file.
The instructions go on to say, “If the successor and predecessor do not agree, or if the requirements described are not met, the predecessor and the successor each must file Forms … 1099 … for their own reportable amounts as they usually would.” In that case, you would file for your reportable payments made prior to the acquisition. After the acquisition, either your company or the new owner would be responsible.
The instructions continue: “The combined reporting procedure is available when all the following conditions are met:
1. The successor acquires from the predecessor substantially all the property (a) used in the trade or business of the predecessor, including when one or more corporations are absorbed by another corporation under a merger agreement, or (b) used in a separate unit of a trade or business of the predecessor.
2. The predecessor is required to report amounts, including any withholding, on information returns for the year of acquisition for the period before the acquisition.
3. The predecessor is not required to report amounts, including withholding, on information returns for the year of acquisition for the period after the acquisition.”
Also see Rev. Proc. 99-50.
We are not clear about your question regarding distinct EINs after the merger. Once you are a combined entity, you are one legal entity; do you expect to continue to operate as a separate entity and keep your EIN at that point?
There are a couple of ways reporting can be done within parent/subsidiary relationships, though the general rule is the entity issuing the payment is usually the one responsible for the 1099, unless there is a written agreement within the organization otherwise. But do you anticipate the circumstance in which two subsidiaries within the company make payments to the same vendor? If you have a clear idea and can explain how you will operate after the acquisition, we will explore further.