Instructions For Form 1099-Misc - 2006 (Page 8 of 31) in pdf

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Nonqualified deferred compensation (Section 409A)

Payments to section 530 (of the Revenue Act of 1978)

income. Include in box 7 the amount of all deferrals (plus

workers. See the TIP on page MISC-3.

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earnings) reported in box 15b that are includible in gross

Fish purchases for cash. See Fish purchases on page

income because the NQDC plan fails to satisfy the

MISC-2.

requirements of section 409A. These amounts generally are

Golden parachute payments. A parachute payment is any

subject to self-employment tax and are also subject to a

payment that meets all of the following conditions.

substantial additional tax under section 409A that is reported on

1. The payment is in the nature of compensation.

the nonemployee’s Form 1040. See Notice 2005-1, which is

2. The payment is to, or for the benefit of, a disqualified

available on page 274 of Internal Revenue Bulletin 2005-2 at

individual.

3. The payment is contingent on a change in the ownership

When to report. If the following four conditions are met, you

of a corporation, the effective control of a corporation, or the

must generally report a payment as nonemployee

ownership of a substantial portion of the assets of a corporation

compensation.

(a change in ownership or control).

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You made the payment to someone who is not your

4. The payment has (together with other payments

employee;

described in 1, 2, and 3 above made to the same individual) an

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You made the payment for services in the course of your

aggregate present value of at least 3 times the individual’s base

trade or business (including government agencies and nonprofit

amount.

organizations);

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You made the payment to an individual, partnership, estate,

A disqualified individual is one who at any time during the

or, in some cases, a corporation; and

12-month period prior to and ending on the date of the change

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You made payments to the payee of at least $600 during the

in ownership or control of the corporation (the disqualified

year.

individual determination period) was an employee or

independent contractor and was in regard to that corporation, a

Examples. The following are some examples of payments

shareholder, an officer, or a highly compensated individual.

to be reported in box 7.

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Professional service fees, such as fees to attorneys

For more details, see Regulations section 1.280G-1. Also,

(including corporations), accountants, architects, contractors,

see Rev. Proc. 2003-68, which is on page 398 of Internal

engineers, etc.

Revenue Bulletin 2003-34 at

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Fees paid by one professional to another, such as

irb03-34.pdf, concerning the valuation of stock options for

fee-splitting or referral fees.

purposes of golden parachute payment rules. For the treatment

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Payments by attorneys to witnesses or experts in legal

of unvested shares of restricted stock, see Rev. Rul. 2005-39,

adjudication.

which is on page 1 of Internal Revenue Bulletin 2005-27 at

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Payment for services, including payment for parts or

irb05-27.pdf

materials used to perform the services if supplying the parts or

Independent contractor. Enter in box 7 the total

materials was incidental to providing the service. For example,

compensation, including any golden parachute payment. For

report the total insurance company payments to an auto repair

excess golden parachute payments, see box 13 reporting

shop under a repair contract showing an amount for labor and

instructions.

another amount for parts, if furnishing parts was incidental to

repairing the auto.

For employee reporting of these payments, see Pub. 15-A.

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Commissions paid to nonemployee salespersons that are

Box 8. Substitute Payments in Lieu of Dividends

subject to repayment but not repaid during the calendar year.

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or Interest

A fee paid to a nonemployee, including an independent

contractor, or travel reimbursement for which the nonemployee

Enter aggregate payments of at least $10 received by a broker

did not account to the payer, if the fee and reimbursement total

for a customer in lieu of dividends or tax-exempt interest as a

at least $600. To help you determine whether someone is an

result of a loan of a customer’s securities. For this purpose, a

independent contractor or an employee, see Pub. 15-A.

customer includes an individual, trust, estate, partnership,

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Payments to nonemployee entertainers for services. Use

association, company, or corporation. See Notice 2003-67,

Form 1042-S, Foreign Person’s U.S. Source Income Subject to

which is on page 752 of Internal Revenue Bulletin 2003-40 at

Withholding, for payments to nonresident aliens.

irb03-40.pdf. It does not include a

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Exchanges of services between individuals in the course of

tax-exempt organization, the United States, any state, the

their trades or businesses. For example, an attorney represents

District of Columbia, a U.S. possession, or a foreign

a painter for nonpayment of business debts in exchange for the

government. File Form 1099-MISC with the IRS and furnish a

painting of the attorney’s law offices. The amount reportable by

copy to the customer for whom you received the payment. Also,

each on Form 1099-MISC is the FMV of his or her own services

file Form 1099-MISC for and furnish a copy to an individual for

performed. However, if the attorney represents the painter in a

whom you received a payment in lieu of tax-exempt interest.

divorce proceeding, this is an activity that is unrelated to the

Substitute payment means a payment in lieu of (a) a

painter’s trade or business. The attorney must report on Form

dividend or (b) tax-exempt interest to the extent that interest

1099-MISC the value of his or her services. But the painter

(including OID) has accrued while the securities were on loan.

need not report on Form 1099-MISC the value of painting the

law offices because the work is in exchange for legal services

Box 9. Payer Made Direct Sales of $5,000 or

that are separate from the painter’s business.

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Taxable fringe benefits for nonemployees. For information on

the valuation of fringe benefits, see Pub. 15-B, Employer’s Tax

Enter an “X” in the checkbox for sales by you of $5,000 or more

of consumer products to a person on a buy-sell,

Guide to Fringe Benefits.

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deposit-commission, or other commission basis for resale (by

Gross oil and gas payments for a working interest.

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the buyer or any other person) anywhere other than in a

Payments to an insurance salesperson who is not your

permanent retail establishment. Do not enter a dollar amount in

common law or statutory employee. See Pub. 15-A for the

this box.

definition of employee. However, for termination payments to

former insurance salespeople, see 5. Termination payments to

If you are reporting an amount in box 7, you may also check

former self-employed insurance salespeople on page MISC-4.

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box 9 on the same Form 1099-MISC.

Directors’ fees as explained under Directors’ fees on page

MISC-3.

The report you must give to the recipient for these direct

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Commissions paid to licensed lottery ticket sales agents as

sales need not be made on the official form. It may be in the

explained under Commissions paid to lottery ticket sales agents

form of a letter showing this information along with

on page MISC-3.

commissions, prizes, awards, etc.

MISC-6

Instructions For Form 1099-Misc - 2006 Page 8

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