Question of the Week: Are There Any Instances Where You Don’t Need to Issue a 1099 to an LLC?
Short answer: If the LLC is organized as a corporation, and is not an attorney, then a 1099 is not required.
LLC’s can be organized in different business structures
“LLC” means “Limited Liability Company.” A LLC is not necessarily a “Corporation.” A mistake many people make is to assume that anyone with an LLC is incorporated. An LLC may be organized as:
- A sole proprietorship
- A partnership
- A corporation
- A few other less common forms of business entity
You treat the LLC depending on how it is organized
The owner of the LLC makes a selection of the business structure when the LLC is formed and from that decision other consequences follow. For example if the LLC is set up as a sole proprietorship and provides services to your company then you must issue a 1099. Partnerships that provide personal services to your business must also receive a 1099.*
When a LLC does not receive a 1099
If the LLC is organized as a corporation then it is treated as a corporation. You are not required to issue a 1099 for payments made to a bona fide corporation. There is an exception, so keep reading.
Special case for attorneys
However, there is a special provision in the IRS rules for attorneys. If you pay an attorney for services to your business, even if the attorney is incorporated (via LLC or not), you must issue a 1099 to report the payments.*
One last word
I recommend to my clients that when they are engaging a consultant who states he/she has a corporation, they verify the corporation’s current status. Ask for a current copy of the Certificate of Incorporation, showing the corporation is properly registered and all fees are current. It‘s not uncommon for a consultant to initially form a LLC as a corporation, and then as time goes by allow the corporation to become inactive. However, the consultant continues to represent himself as an active corporation. This can create a real problem if you are audited by a government agency.
* In all discussions above I’m assuming you pay over $600 to the LLC during the year, which is the threshold for issuing a 1099.
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