I prepare 1099s for a property and casualty insurance company. If we are ordered by the court to pay the insured and his attorney a global settlement on one check, and we don't know how much of that is attorney fees, how much do we report in box 14?

Follow

See Demystifying Form 1099 for Legal Settlements:

Payments made to attorneys for legal services performed for someone other than your company are reportable in box 14. "Attorney Gross Proceeds" must be reported here if the attorney is a payee on the check, even if they do not receive the entire amount. For example, you have a settlement check for $100,000. The claimant is James Johnson, and the law firm is Jones & Clark LLC. The entire $100,000 will be reported to Jones & Clark LLC, even if they are only receiving $30,000 of the amount as their legal fees. They are a payee on the check, so you must report the entire amount.

You may also have reporting obligations to James Johnson, though if the settlement is only for replacement of the property, and there are no punitive damages being paid above the cost of the property (such as “for inconvenience” or emotional distress), you would not report the settlement to the claimant. On that question, also see IRS Pub 525 and IRS Pub 4345.


Have more questions? Submit a request

Comments