1099 for property mgmt companies?

Is it proper to send a 1099 to a property management company for property management fees even though there is no cash paid to the property management company? The property management cost is netted out of the rental income from the tenant. I assume so but thought I'd ask.

Is the property management company paid the rent plus their fee, and then the rent is paid to the property owner's account less their fee? If this is the case, see the 1099 MISC box 1 instructions. No 1099 is normally required to be sent to the property management company.

The property management cost is netted out of the rental income from the tenant.

What you're describing are deemed cash payments for services. So yes, they're subject to 1099-NEC reporting requirements.

Is the property management company paid the rent plus their fee, and then the rent is paid to the property owner's account less their fee? If this is the case, see the 1099 MISC box 1 instructions. No 1099 is normally required to be sent to the property management company.

I'm not talking about box 1 rents, but rather box 3, other income for the property management fees the property manager in effect received.

The property management cost is netted out of the rental income from the tenant.

What you're describing are deemed cash payments for services. So yes, they're subject to 1099-NEC reporting requirements.

Thanks for confirming. Makes sense to me.

Not to pick nits, but cash payments to ICs for services belong on 1099-NEC, not 1099-MISC box 3.

Not to pick nits, but cash payments to ICs for services belong on 1099-NEC, not 1099-MISC box 3.

Ah yes, agreed and would've issued 1099-NEC. I'm still stuck back in 1099-MISC lingo from years ago. Thanks!

I think Seaside CPA is correct on this one. The management company should be sending a 1099-MISC to the property owner. A 1099-NEC should not be needed for the property management company.

A 1099-NEC should not be needed for the property management company.

Why not?

Payments of more than $600 in cash/check/EFT/ACH for services rendered, with limited exception, need to be reported on a 1099-NEC.

Are you arguing these are not reportable payments (cash/deemed cash/check/EFT/ACH)? If yes, what kind of payments are these? The only remaining options that I can think of are barter, credit/debit card, and third party payment network.

Are you arguing this meets one of the exceptions? If yes, which one? Assume the PM is not a corporate tax entity.

Are you arguing that because the PM is an agent who made the payment on behalf of a principal, they should issue the 1099-NEC...to themselves? That's novel, and might be technically correct, but how many PMs do you think are doing that?

People who claim that PMs don't need to be 1099ed for PM fees withheld from gross rents usually base that claim on *feeling*, without any kind of authoritative support. I'd like to be proven wrong.

How many property managers are not corporations?

I encounter a fair amount. If the DIYed W-9 can be trusted.

However -- the questions still exist. Maybe I'm just tired from PMs pushing back on my clients and making what should be a streamlined process inefficient.

The PM is certainly receiving compensation for their services, but in this case thee PM is collecting the rents and remitting them over to the owner. The PM is obligated to do the information reporting per 1.6041-1(e)(1) and 1.6041-1(e)(5) Example 5.

No where in this guidance is there any indication that the owner should issue a 1099-NEC back to the PM for the management fee.

I don't suppose there is any harm in sending a 1099-NEC back to the PM if you wanted to...but there is no requirement to do so.

The PM is certainly receiving compensation for their services, but in this case thee PM is collecting the rents and remitting them over to the owner. The PM is obligated to do the information reporting per 1.6041-1(e)(1) and 1.6041-1(e)(5) Example 5.

Yeah, we all agree with that. That's not in contention.

No where in this guidance is there any indication that the owner should issue a 1099-NEC back to the PM for the management fee.

Well, the guidance would lead us to believe that the PM should 1099 themselves per 1.6041-1(e)(1) based on the agent-principal relationship. Doesn't make a lot of sense but that's what a plain reading suggests.

I don't take the lack of mention of what happens to the PM fee in Example 5 as dispositive that there's no 1099 obligation as it relates to the payments. Sure, it doesn't say a 1099 needs to be filed, but it doesn't say one doesn't need to be filed either. It's silent. The flush language in 6041 and 6041A indicates PM fees fall under the purview of 1099 reporting unless the PM is an S Corp. The legislative intent of 6041 and 6041A, at least in my eyes, is to report service payments that are includeable in gross income (of the service provider), subject to limited and explicit exception.

We seem to be getting hung up on the fact that the cash didn't go from the owner to the PM, but rather the tenant to the PM. So, therefore, the owner "didn't make a payment".

If:

the owner incurs a liability with the PM for services rendered,
the PM collects cash on the owner's behalf, and
the owner instructs through contract that the PM satisfy that liability with said cash,

I don't see how the owner hasn't made "payment" in the course of his trade or business. Based on the common definition of the word, and the substance over form doctrine.

I think this falls under section 6041 as well which states basically if you make a payment on behalf of another person who is the source of the money, you would be the one to file the 1099. You would be the payor if you perform management or oversight functions in connection with the payment. I think this relieves the owner of being responsible for filing the 1099.

As Spock stated above, no harm in sending a 1099 if desired, but I do not think it is required by the owner.

When a PM vets, hires and pays a plumber, they're performing mgmt and oversight as it relates to the payment to the plumber.

Who is performing mgmt and oversight over the PM?

How many property managers are not corporations?

Most of them are not in my experience. Most of them are mom and pop shop setups (LLCs). I issued 1099s for the deemed cash payments to the property management companies that met the 1099 requirements.