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1099-MISCgivings: Reporting Taxable Awards & Settlements
The Federal tax code and corresponding regulations require a lawyer to send a 1099-MISC form to certain individuals (and non-incorporated business entities) who receive disbursements from the lawyer's trust fund for legal awards and settlements. Writing on behalf of a law firm, an accounting firm reader has asked about the proper way to report such disbursements.
The querying firms are not alone in their puzzlement and concern. Failure to file a required 1099-MISC form makes a law firm liable for a $100 penalty ' $50 for the payee copy and another $50 for the IRS copy ' along with other possibly significant civil penalties for assisting other taxpayers in evading proper tax liability. Yet many firms apparently fail to comply with the requirement because of poor recordkeeping and uncertainty about the rules.
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