New IRS Law January 1? Providing your W9 to the co-op broker?

By
Real Estate Broker/Owner with Blend Real Estate, broker/owner 01179760

Someone please clarify this for me. I have just put a very large and expensive home in escrow and I got a call from the office manager of the listing agent's side that she needs a W9 from me in order to complete the transaction. She was talking in riddles so I will spare you the conversation I had with her, but she is saying this:

As of January 1, 2009, all buyer's agents will provide a completed W9 to the listing side. Checks are still cut from escrow, but it appears the IRS is trying to pin down a paper trail on commissions paid. When I asked her if she is reporting commissions paid to the IRS vis-a-vie these W9s, she said she didn't know.

I thought I was up on all the new laws but this one completely passed me by! I think it's ominous. Why would I want my taxpaper ID floating around to various brokerage firms?  And what would I do with an incoming W9 as a broker owner when I am the listing agent?  How did I miss this!?

The listing agent in this deal is a national firm and they won't pay their agents at COE without the other side's W9.

Can anyone clear this up for me? I may have been under a rock when this news broke.

Thank you!

Kimberly Dotseth

broker/owner

GreenBoxHomes.com

 

Posted by

Kimberly Dotseth broker/owner Blend Real Estate DRE #01179760

(858) 452-2599 info@greenboxhomes.com  

2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014 5-Star "Best in Client Satisfaction Award" Winner, San Diego Magazine

Recipient of Realtor Magazine's "Broker Standout" http://bit.ly/KimberlyRealtorMag  

Named San Diego Association of REALTORS 'Broker of the Year' in 2012 for 2011 (10,000+ members)

 

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Anonymous #1
Anonymous
Bruce Erickson

Kimberly,

 

Did you get an answer to this?  I just received a copy of a NAR Information sheet about the requirment for Listing Brokers to provide cooperating broker and the IRS the Form 1099-MISC for all commissions paid over $600.

If we have to start doing this .. it might mean the end of the blanket offer of compensation because we will have to make it conditional of getting the Form W-9 from the buyers agent.

February 23, 2009 11:05 AM
Rainer
21,856
Kimberly Dotseth
Try Our "Cancel Anytime" Listing!
Blend Real Estate, broker/owner

Dear Bruce,

I did not get an answer to this or any responses, except for yours. I have to call the California Association of Realtor's legal hotline for an answer. We can call them for free for things just like this. But I haven't had a free moment to wait on hold for thirty minutes.

I have a feeling that what you're saying is really what is behind what I am being asked of a listing broker's office manager.  And I am afraid I will get an erroneous 1099 because in this case, a deal closing Friday has a 35% referral payment to yet another broker out of my portion. And that broker is being paid directly from escrow.

But this office manager isn't in that loop and I absolutely don't want to risk getting a 1099 for what is perceived by her as the full 2.5% on a large sale. I can see trying to untangle that mess later in the year!

I agree with you: if this is the case, there will be no more blanket offers of compensation because as listing broker you will be responsible for the 1099 and the accuracy of it (see my concerns!).

I am surprised no one is squawking about this. I have to research more and will repost. To date I have not filled out a single W9 to any brokerage this year. Only one is asking me.

Cheers!

Kimberly Dotseth

GreenBoxHomes.com

February 23, 2009 11:50 AM
Rainer
21,856
Kimberly Dotseth
Try Our "Cancel Anytime" Listing!
Blend Real Estate, broker/owner

Dear Bruce,

I did talk to an attorney on the hotline for the California Association of Realtors. She said this is not a new law as of January 1 and that it's been in existence but few know about and fewer still get the cooperating broker's W9 for 1099 purposes.

The clarification she made for me is that if you are incorporated, you do not need to provide a W9 to the listing broker's office.

And if you're the listing broker, you should write your 1099s from the FINAL HUD-1 only, because that will show what was actually paid to the co-op agent. This eliminates any problem or confusion of a co-op agent is paying a referring broker straight out of escrow.

She said that if you get a 1099 and it's wrong, you can take the steps to correct it but "it's a pain" she said. How true, how true.

I am incorporated so I am not going to be providing it when asked, but will ask for it as a condition of commission payment and will probably have to say so in the MLS confidential remarks. This way, buyer's agent know this requirement right up front. My tax guy will love this new role! 1099 writer! And everyone who reads this in the MLS will think I am from Mars because I have never seen this in San Diego.

February 24, 2009 03:57 PM
Anonymous #4
Anonymous
b. poli

It states if you are a corporation or the other person/Broker is a corporation then the w-9 is not necessary but you can get it from the selling agent to prove that they are a corporation.  How stupid this is because the IRS is supposed to simplify paperwork (that's a joke)  It is simplified enough with how it it is done normally.

Tjis law is between Broker to Broker not Agent to Agent unless there is a referal paid by you directly which is against Real estate law anyway.  You can only get paid by your employing Broker.  Accessibility Skip to Top Navigation Skip to Main Content Home  |  Change Text Size  |  Contact IRS  |  About IRS  |  Site Map  |  Español  |  Help   magnifying glass
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IRS Resources

Instructions for the Requester of Form W-9 - Main Contents


 

Table of Contents

How Do I Know When To Use Form W-9?

Use Form W-9 to request the taxpayer identification number (TIN) of a U.S. person (including a resident alien) and to request certain certifications and claims for exemption. (See Purpose of Form on Form W-9.) Withholding agents may require signed Forms W-9 from U.S. exempt recipients to overcome any presumptions of foreign status. For federal purposes, a U.S. person includes but is not limited to:

  • An individual who is a U.S. citizen or U.S. resident alien,

  • A partnership, corporation, company, or association created or organized in the United States or under the laws of the United States,

  • Any estate (other than a foreign estate), or

  • A domestic trust (as defined in Regulations section 301.7701-7).

 

A partnership may require a signed Form W-9 from its U.S. partners to overcome any presumptions of foreign status and to avoid withholding on the partner's allocable share of the partnership's effectively connected income. For more information, see Regulations section 1.1446-1.

Advise foreign persons to use the appropriate
Form W-8. See Pub. 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for more information and a list of the W-8 forms.

Also, a nonresident alien individual may, under certain circumstances, claim treaty benefits on scholarships and fellowship grant income. See Pub. 515 or Pub. 519, U.S. Tax Guide for Aliens, for more information.

Electronic Submission of Forms W-9

Requesters may establish a system for payees and payees' agents to submit Forms W-9 electronically, including by fax. A requester is anyone required to file an information return. A payee is anyone required to provide a taxpayer identification number (TIN) to the requester.

Payee's agent.   A payee's agent can be an investment advisor (corporation, partnership, or individual) or an introducing broker. An investment advisor must be registered with the Securities Exchange Commission (SEC) under the Investment Advisers Act of 1940. The introducing broker is a broker-dealer that is regulated by the SEC and the National Association of Securities Dealers, Inc., and that is not a payer. Except for a broker who acts as a payee's agent for "readily tradable instruments," the advisor or broker must show in writing to the payer that the payee authorized the advisor or broker to transmit the Form W-9 to the payer.

 

Electronic system.   Generally, the electronic system must:

  • Ensure the information received is the information sent, and document all occasions of user access that result in the submission;

  • Make reasonably certain that the person accessing the system and submitting the form is the person identified on Form W-9, the investment advisor, or the introducing broker;

  • Provide the same information as the paper Form W-9;

  • Be able to supply a hard copy of the electronic Form W-9 if the Internal Revenue Service requests it; and

  • Require as the final entry in the submission an electronic signature by the payee whose name is on
    Form W-9 that authenticates and verifies the submission. The electronic signature must be under penalties of perjury and the perjury statement must contain the language of the paper Form W-9.

 

taxtipFor Forms W-9 that are not required to be signed, the electronic system need not provide for an electronic signature or a perjury statement.

 

For more details, see the following.

 

Individual Taxpayer Identification Number (ITIN)

Form W-9 (or an acceptable substitute) is used by persons required to file information returns with the IRS to get the payee's (or other person's) correct name and TIN. For individuals, the TIN is generally a social security number (SSN).

However, in some cases, individuals who become U.S. resident aliens for tax purposes are not eligible to obtain an SSN. This includes certain resident aliens who must receive information returns but who cannot obtain
an SSN.

These individuals must apply for an ITIN on Form W-7, Application for IRS Individual Taxpayer Identification Number, unless they have an application pending for an SSN. Individuals who have an ITIN must provide it on Form W-9.

Substitute Form W-9

You may develop and use your own Form W-9 (a substitute Form W-9) if its content is substantially similar to the official IRS Form W-9 and it satisfies certain certification requirements.

You may incorporate a substitute Form W-9 into other business forms you customarily use, such as account signature cards. However, the certifications on the substitute Form W-9 must clearly state (as shown on the official Form W-9) that under penalties of perjury:

  1. The payee's TIN is correct,

  2. The payee is not subject to backup withholding due to failure to report interest and dividend income, and

  3. The payee is a U.S. person.

 

You may not:

  1. Use a substitute Form W-9 that requires the payee, by signing, to agree to provisions unrelated to the required certifications, or

  2. Imply that a payee may be subject to backup withholding unless the payee agrees to provisions on the substitute form that are unrelated to the required certifications.

 

A substitute Form W-9 that contains a separate signature line just for the certifications satisfies the requirement that the certifications be clearly stated.

If a single signature line is used for the required certifications and other provisions, the certifications must be highlighted, boxed, printed in bold-face type, or presented in some other manner that causes the language to stand out from all other information contained on the substitute form. Additionally, the following statement must be presented to stand out in the same manner as described above and must appear immediately above the single signature line:

"The Internal Revenue Service does not require your consent to any provision of this document other than the certifications required to avoid backup withholding."

If you use a substitute form, you are required to provide the Form W-9 instructions to the payee only if he or she requests them. However, if the IRS has notified the payee that backup withholding applies, then you must instruct the payee to strike out the language in the certification that relates to underreporting. This instruction can be given orally or in writing. See item 2 of the Certification on Form W-9. You can replace "defined below" with "defined in the instructions" in item 3 of the Certification on Form W-9 when the instructions will not be provided to the payee except upon request. For more information, see Revenue Procedure 83-89,1983-2, C.B. 613; amplified by Revenue Procedure 96-26 which is on page 22 of I.R.B. 1996-8 at
www.irs.gov/pub/irs-irbs/irb96-08.pdf.

TIN Applied for

For interest and dividend payments and certain payments with respect to readily tradable instruments, the payee may return a properly completed, signed Form W-9 to you with "Applied For" written in Part I. This is an "awaiting-TIN" certificate. The payee has 60 calendar days, from the date you receive this certificate, to provide a TIN. If you do not receive the payee's TIN at that time, you must begin backup withholding on payments.

Reserve rule.   You must backup withhold on any reportable payments made during the 60-day period if a payee withdraws more than $500 at one time, unless the payee reserves 28 percent of all reportable payments made to the account.

 

Alternative rule.   You may also elect to backup withhold during this 60-day period, after a 7-day grace period, under one of the two alternative rules discussed below.

 

Option 1.   Backup withhold on any reportable payments if the payee makes a withdrawal from the account after the close of 7 business days after you receive the awaiting-TIN certificate. Treat as reportable payments all cash withdrawals in an amount up to the reportable payments made from the day after you receive the awaiting-TIN certificate to the day of withdrawal.

 

Option 2.   Backup withhold on any reportable payments made to the payee's account, regardless of whether the payee makes any withdrawals, beginning no later than 7 business days after you receive the awaiting-TIN certificate.

 

cautionThe 60-day exemption from backup withholding does not apply to any payment other than interest, dividends, and certain payments relating to readily tradable instruments. Any other reportable payment, such as nonemployee compensation, is subject to backup withholding immediately, even if the payee has applied for and is awaiting a TIN.

 

Even if the payee gives you an awaiting-TIN certificate, you must backup withhold on reportable interest and dividend payments if the payee does not certify, under penalties of perjury, that the payee is not subject to backup withholding.

If you do not collect backup withholdings from affected payees as required, you may become liable for any uncollected amount.

Payees Exempt From Backup Withholding

Even if the payee does not provide a TIN in the manner required, you are not required to backup withhold on any payments you make if the payee is:

  1. An organization exempt from tax under
    section 501(a), any IRA where the payor is also the trustee or custodian, or a custodial account under section 403(b)(7) if the account satisfies the requirements of section 401(f)(2),

  2. The United States or any of its agencies or instrumentalities,

  3. A state, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities,

  4. A foreign government or any of its political subdivisions, agencies, or instrumentalities, or

  5. An international organization or any of its agencies or instrumentalities.

    Other payees that may be exempt from backup withholding include:

  6. A corporation,

  7. A foreign central bank of issue,

  8. A dealer in securities or commodities required to register in the United States, the District of Columbia, or a possession of the United States,

  9. A futures commission merchant registered with the Commodity Futures Trading Commission,

  10. A real estate investment trust,

  11. An entity registered at all times during the tax year under the Investment Company Act of 1940,

  12. A common trust fund operated by a bank under
    section 584(a),

  13. A financial institution,

  14. A middleman known in the investment community as a nominee or custodian, or

  15. A trust exempt from tax under section 664 or described in section 4947.

 

The following types of payments are exempt from backup withholding as indicated for items 1 through 15 above.

 

Interest and dividend payments.   All listed payees are exempt except the payee in item 9.

 

 

Broker transactions.   All payees listed in items 1
through 13 are exempt. A person registered under the Investment Advisers Act of 1940 who regularly acts as a broker is also exempt.

 

Barter exchange transactions and patronage dividends.   Only payees listed in items 1 through 5 are exempt.

 

Payments reportable under sections 6041 and 6041A.   Only payees listed in items 1 through 7 are generally exempt.

 

  However, the following payments made to a corporation (including gross proceeds paid to an attorney under section 6045(f), even if the attorney is a corporation) and reportable on Form 1099-MISC, Miscellaneous Income, are not exempt from backup withholding.

 

  

  • Medical and health care payments.

  • Attorneys' fees.

  • Payments for services paid by a federal executive agency. (See Revenue Ruling 2003-66 on page 1115 in I.R.B. 2003-26 at www.irs.gov/pub/irs-irbs/irb03-26.pdf.)

 

Payments Exempt From Backup Withholding

Payments that are not subject to information reporting also are not subject to backup withholding. For details, see sections 6041, 6041A, 6042, 6044, 6045, 6049, 6050A, and 6050N, and their regulations. The following payments are generally exempt from backup withholding.

 

Dividends and patronage dividends   

  • Payments to nonresident aliens subject to withholding under section 1441.

  • Payments to partnerships not engaged in a trade or business in the United States and that have at least one nonresident alien partner.

  • Payments of patronage dividends not paid in money.

  • Payments made by certain foreign organizations.

  • Section 404(k) distributions made by an ESOP.

 

 

Interest payments   

  • Payments of interest on obligations issued by individuals. However, if you pay $600 or more of interest in the course of your trade or business to a payee, you must report the payment. Backup withholding applies to the reportable payment if the payee has not provided a TIN or has provided an incorrect TIN.

  • Payments described in section 6049(b)(5) to nonresident aliens.

  • Payments on tax-free covenant bonds under
    section 1451.

  • Payments made by certain foreign organizations.

  • Mortgage or student loan interest paid to you.

 

 

Other types of payment   

  • Wages.

  • Distributions from a pension, annuity, profit-sharing or stock bonus plan, any IRA where the payor is also the trustee or custodian, an owner-employee plan, or other deferred compensation plan.

  • Distributions from a medical or health savings account and long-term care benefits.

  • Certain surrenders of life insurance contracts.

  • Distribution from qualified tuition programs or
    Coverdell ESAs.

  • Gambling winnings if regular gambling winnings withholding is required under section 3402(q). However, if regular gambling winnings withholding is not required under section 3402(q), backup withholding applies if the payee fails to furnish a TIN.

  • Real estate transactions reportable under
    section 6045(e).

  • Cancelled debts reportable under section 6050P.

  • Fish purchases for cash reportable under
    section 6050R.

  • Certain payment card transactions by a qualified payment card agent (as described in Revenue Procedure 2004-42 and Regulations section 31.3406(g)-1(f) and if the requirements under Regulations section 31.3406(g)-1(f) are met. Revenue Procedure 2004-42 is on page 121 of I.R.B. 2004-31 which is available at
    www.irs.gov/pub/irs-irbs/irb04-31.pdf.

 

Joint Foreign Payees

If the first payee listed on an account gives you a
Form W-8 or a similar statement signed under penalties of perjury, backup withholding applies unless:

  1. Every joint payee provides the statement regarding foreign status, or

  2. Any one of the joint payees who has not established foreign status gives you a TIN.

 

If any one of the joint payees who has not established foreign status gives you a TIN, use that number for purposes of backup withholding and information reporting.

For more information on foreign payees, see the Instructions for the Requester of Forms W-8BEN, W-8ECI, W-8EXP, and W-8IMY.

Names and TINs To Use for Information Reporting

Show the full name and address as provided on Form W-9 on the information return filed with the IRS and on the copy furnished to the payee. If you made payments to more than one payee or the account is in more than one name, enter on the first name line only the name of the payee whose TIN is shown on the information return. You may show the names of any other individual payees in the area below the first name line.

Sole proprietor.   Enter the individual's name on the first name line. On the second name line, enter the business name or "doing business as (DBA)" if provided. You may not enter only the business name. For the TIN, you may enter either the individual's SSN or the employer identification number (EIN) of the business. However, the IRS encourages you to use the SSN.

 

LLC.   For an LLC that is disregarded as an entity separate from its owner, you must show the owner's name on the first name line. On the second name line, you may enter the LLC's name. Use the owner's TIN. Do not enter the disregarded entity's EIN.

 

Notices From the IRS

The IRS will send you a notice if the payee's name and TIN on the information return you filed do not match the IRS's records. (See Taxpayer Identification Number (TIN) Matching below.) You may have to send a "B" notice to the payee to solicit another TIN. Pub. 1281, Backup Withholding for Missing and Incorrect Name/TIN(s), contains copies of the two types of "B" notices.

Taxpayer Identification Number (TIN) Matching

TIN Matching allows a payer or authorized agent who is required to file Forms 1099-B, DIV, INT, MISC, OID,
and /or PATR to match TIN and name combinations with IRS records before submitting the forms to the IRS. TIN Matching is one of the e-services products that is offered, and is accessible through the IRS website. Go to
www.irs.gov and search for "e-services." It is anticipated that payers who validate the TIN and name combinations before filing information returns will receive fewer backup withholding (CP2100) "B" notices and penalty notices.

Additional Information

For more information on backup withholding, see Pub. 1281.

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September 19, 2009 05:37 PM
Show All Comments
Rainer
21,856

Kimberly Dotseth

Try Our "Cancel Anytime" Listing!
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