Filing Taxes and Nominee payments

By | January 24, 2016

If you are receiving payments for someone else, you need to follow the procedure for “nominee payments.” This is where payments are made in your name but you are not the beneficiary of the payments.

I assume that you received a 1099-K. You must obtain a blank Form 1099-K and a blank Form 1096. You must use official forms, you cannot print these forms out over the internet. You can order copies of each form from the IRS.
You can also buy them from, Staples, Officemax, and other office supply stores.

You fill out the 1099-K using YOUR name, address, and Social Security number as the payor. You list your partner’s name, address, and Social Security number as the payee.

You then give your partner the payee copy, and send the IRS copy to the IRS together with Form 1096.

On your tax return, attach Schedule C. Show the amount from the 1099-K as income and show the amount your partner received as a business expense. That will net out your income as $0 and you won’t have to pay any taxes and it will not affect your AGI.

Technically, you are supposed to give the 1099-K to your partner by Feb 1, but unless he files a complaint with the IRS, there’s no harm if you are late. You have to file the 1099-k and 1096 with the IRS by Feb 29.

And do print out account statements or other documents that show that your partner was the ultimate recipient of the money and that you did not keep it for yourself.


What is a Nominee Payment?

A “nominee” is someone who is given limited authority to act on behalf of an entity, usually for a limited period of time, and usually during the formation of the entity.  The “principal officer, general partner,” etc., as defined by the IRS, is the true “responsible party” for the entity, instead of a nominee. The “responsible party” is the individual or entity that controls, manages, or directs the entity and the disposition of the entity’s funds and assets, unlike a nominee, who is given little or no authority over the entity’s assets.

The Internal Revenue Service has become aware that nominee individuals are being listed as principal officers, general partners, grantors, owners, and trustors in the Employer Identification Number (EIN) application process. A nominee is not one of these people. Rather, nominees are temporarily authorized to act on behalf of entities during the formation process. The use of nominees in the EIN application process prevents the IRS from gathering appropriate information on entity ownership, and has been found to facilitate tax non-compliance by entities and their owners.

The IRS does not authorize the use of nominees to obtain EINs. All EIN applications (mail, fax, electronic) must disclose the name and Taxpayer Identification Number (SSN, ITIN, or EIN) of the true principal officer, general partner, grantor, owner or trustor. This individual or entity, which the IRS will call the “responsible party,” controls, manages, or directs the applicant entity and the disposition of its funds and assets.

To properly submit a Form SS-4, the form and authorization should include the name, Taxpayer Identification Number and signature of the responsible party. Third party designees filing online applications are reminded of their obligation to retain a complete signed copy of the paper Form SS-4 and signed authorization statement for each entity application filed with the IRS. Nominees do not have the authority to authorize third party designees to file Forms SS-4, and should not be listed on the Form SS-4.

If a nominee is used in the state formation process and the true responsible party has not yet been identified, the entity must identify that individual before applying for an EIN.

The IRS will continue to pursue enforcement actions to prevent the misuse of EIN applications.

If you used a nominee for the EIN Application process, visit Correcting Business Information Where a Nominee Was Used to learn how to correct your information.