USA 1099 Reporting / Foreign Payors


JWB

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I have a new client who is a U.S. partnership. They process health insurance claims for foreign individuals visiting the U.S. who carry foreign health insurance. The foreign insurance companies send money to pay claims to my client. My client collects the funds then issues payments to U.S. healthcare providers.

My question is, should my client be issuing 1099s to the healthcare providers? I told them this was probable. They argued a) they are merely a third party acting on behalf of a foreign health insurer, and b) they have never issued 1099s in all the years they have been in business, and to do so would be prohibitively burdensome. They issue hundreds of payments per week across the country.

My concern is if they are in fact required to issue 1099s, they are looking at enormous penalties if it is ever questioned.

I cannot find any guidance online or in my tax law library. Does anyone know the answer to this?
 
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Drmdcpa

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Their rationalizations are invalid to the stance of not having to issue 1099s.

Being a third party payer does not excuse the requirement to issue 1099s. Some of my clients are high executives in multinational businesses. Part of their compensation plan is for their employer to pay a portion of my fee. These large multinational businesses will not issue a check to me until I provide them with a W-9.

Just because you have never done so, does not mean you are not required to do it. I get new business clients all the time that do not understand 1099 rules. One this past month was operating a partnership since 2014 and was unaware of its 1099 filing requirements.

Costs are a function of being in industry. It is the business managers job to comply while incurring the least amount of costs.

Note the following: starting in 2020, non-employee compensation no longer gets reported in box seven of the 1099 misc. Instead a new 1099 now exists solely for reporting what used to go in box 7. It is 1099-NEC.

1099 miscellaneous rules are quite simple for the business service expense.

They are as I understand them, in part, if YOU make a payment to a non-incorporated service provider for $600 or more and you take a business deduction on the income tax return for the payment made to the service provider, you are required to issue a 1099. An exception is for legal fees. For legal fees it does not matter the dollar amount or if the law office is a corporation or not.

Last I looked at a 1099 misc closely, I believe there was a specific box for medical services like there is for legal and rent.

Although I would have to research, based on everything presented above, and all I know, I agree with you. They are required to act just like the multinationals and obtain a W-9 before making payment, issue 1099s, and pay severe penalties for willfully not complying.

Since I am in California and it strictly enforces its non- resident withholding, the multinationals also require I provide a CA form that declares I am not subject non-resident withholding.
 
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