One of our team members who was a senior accountant in her previous life is challenging me regarding how to treat LLCs. She maintains that LLCs are always exempt from 1099 reporting...

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Q. (cont.) I explained that LLC are reportable, unless they are a C- or S-corporation (and a disregarded entity?). 

 Would you be so kind as to confirm whether the LLCs are reportable?

A. “LLC” is not a tax classification, and can be (depending on the state) a partnership, sole proprietor (the LLC is a “disregarded entity”), or corporation.

That is why the IRS modified the W-9 to ask for tax classification for LLCs. See the current IRS Form W-9.

With regard to tax classification:

• Corporations, both C and S, are exempt from 1099 reporting.

• Sole proprietors (disregarded entities) and Partnerships are not exempt.

When dealing with an LLC, you must know its tax classification to determine whether or not it is reportable. You cannot decide on the basis of a vendor’s being an LLC whether it is exempt or not.

 

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