Q. (cont.) We had a new situation come up recently where the defendant signed a document requesting that we (the City) pay his attorney out of the cash bond refund that we were issuing to him. Would this payment to the attorney be reportable to the IRS? If so, would this be a box 7 or 14 payment?
A. We contacted the IRS and spoke to Mr. Hall (ID#1002444893). Mr. Hall referenced section 1.6041-1 of the code regarding assignment of income, saying that you do not have to report the payment to the attorney. The reason is that the owner and controller of the income is the defendant; the defendant has directed that a part of the refund due him go to his attorney to pay his attorney fee. You do not “control” the money, but act at his/her direction. No 1099 is necessary.
Also on the AP&P2P Network, see 1099: Assignment of Income and Middleman Regulations.