Summary of Federal Laws                                   

Compliance Partners

Records Manager OGC

Director of Accounts Payable

 

Tax

 

Miscellaneous Tax Issues

 

Reporting of Payments to Attorneys

26 CFR 1.6045-5; 26 CFR 1.6041-6;  71 Fed. Reg. 39548 (July 13, 2006)

 

This section of the tax regulations reflects changes made to the law by the Taxpayer Relief Act of 1997. The final regulations require those who make payments to attorneys aggregating $600 or more per calendar year in connection with legal services must file an information return for such payments. This requirement applies whether or not the services were performed for the payor, so for example, if the university was a defendant in a lawsuit, and was required to pay attorneys fees, this rule would apply. The filer must also provide to the attorney a written statement of the information required to be included on the return. Note that employers must report entire settlement amounts, including the amount paid to the attorneys, as income to the plaintiff, and also prepare a Form 1099 reporting the amount paid to the attorneys as income to the attorneys. Failure to do so may result in penalty payments to the IRS, a wel as obligation to pay back withholding. See the Holland and Knight article below.

 

Information required. The information return required under paragraph (a)(1) of this section must include the following information:
    (i) The name, address, and taxpayer identifying number (TIN) (as defined in section 7701(a)) of the payor;
    (ii) The name, address, and TIN of the payee attorney;
    (iii) The amount of the payment or payments (as defined in paragraph (d)(5) of this section); and
    (iv) Any other information required by the Commissioner in forms, instructions or publications.

These regulations are effective to payments made in or after 2007.

 

 

 

Related Resources
Q and A on Tax Obligations Regarding Settlement Payments 

See also Holland and Knight: The Supreme Court weighs in on Taxability of Contingent Fees in Employment Cases***


links updated 6/24/08 rab
CFR updated 11/17/08 RAB

Updated 5/22/09 to add compliance partners and links checked mlo
compliance box links updated 6/10/09 rab