By T. Scott Gilligan, NFDA general counsel
Every January, NFDA fields questions from members regarding cash advances and Form 1099. Typically, the questions arise because the funeral home's accountant instructs the funeral home to issue a Form 1099 to each minister, hairdresser, musician, or florist who has received cash advance payments in an aggregate amount of $600 or more from the funeral home during the tax year. The purpose of the Form 1099 is to report to the IRS that payments have been made, who received the payments, and how much the payments were. Obviously, the issuance of the Form 1099 places an onerous paperwork burden on the funeral home and often triggers the question as to whether funeral homes are legally required to issue a Form 1099 to each recipient of cash advance payments.
The answer in most cases is NO. Section 1.6041-1 of the IRS regulations governs the issuance of Form 1099. Subsection (e) addresses the situation where a business serves as a middleman in the payment process. The regulation requires the business that makes a payment as a middleman to issue a Form 1099 to the payee, but only if the business:
(1) performs management or oversight functions in connection with the payment; and
(2) has a significant economic interest in the payment.
Several years ago, the IRS was asked whether a funeral home was responsible to issue a Form 1099 with regard to cash advance payees. Relying upon Regulation 1.6041-1(e), the IRS issued a private letter ruling (PLR 200106032) which found that generally funeral homes do not perform management or oversight functions with regard to services performed by cash advance payees. In that regard, the IRS noted that the funeral home "neither directs or inspects the quality of the work provided." It also does not select the providers, negotiate the price for services, or have the discretion to withhold payment for unsatisfactory performances. As such, the IRS found that the funeral home was not obligated to issue Form 1099 to third party providers who receive cash advance payments from the funeral home.
When issuing private letter rulings, the IRS always notes that the ruling does not serve as precedent in other cases. However, they do provide an indication to taxpayers on how the IRS interprets its own regulations. Since Regulation 1.6041-1(e) has not changed since the private letter ruling on cash advances was issued, it appears that the private letter ruling is still applicable to the question of whether funeral homes have to issue Form 1099 to cash advance payees. As long as the funeral home is not exercising supervisory control over the third party service provider, the IRS private letter ruling would indicate that a funeral home does not have to issue a Form 1099 to a cash advance payee.
Any NFDA members who have questions regarding this article or who wish to obtain a copy of Private Letter Ruling 200106032, should contact NFDA General Counsel Scott Gilligan at 513-871-6332.