Professional Service Firms Articles
Final Regulations - Reporting of Gross Proceeds Payments to Attorneys

Target Audience: Legal Professionals, Professional Service Firms, Law Firm Accountants

This article contains final regulations relating to the reporting of payments of gross proceeds to attorneys. The regulations reflect changes to the law made by the Taxpayer Relief Act of 1997 (1997 Act). The final regulations will affect attorneys who receive payments of gross proceeds on behalf of their clients and will affect certain payors (for example, defendants in lawsuits and their insurance companies and agents) that, in the course of their trades or businesses, make payments to these attorneys.

Requirement of Reporting

Every payor engaged in a trade or business who, in the course of that trade or business, makes payments aggregating $600 or more during a calendar year to an attorney in connection with legal services (whether or not the services are performed for the payor) must file an information return for such payments. The requirements apply whether or not 1) A portion of a payment is kept by the attorney as compensation for legal services rendered; or, 2) Other information returns are required with respect to some or all of a payment under other provisions of the Internal Revenue Code and the regulations thereunder.

Required Information

The information return must include the following: 1) The name, address and taxpayer identifying number (TIN) (as defined in section 7701 (a)) of the payor; 2) The name, address and TIN of the payee attorney; 3) The amount of the payment or payments; and 4) Any other information required by the Commissioner in forms, instructions, or publications.

A person required to file an information return must furnish to the attorney a written statement of the information required to be shown on the return. In addition, the attorney with respect to whom the information return is required to be filed (tier-one attorney) must file an information return under this section for any payment that the tier-one attorney makes to other payee attorneys with respect to that check, regardless of whether the tier-one attorney is a payor.

Exceptions

A return of information is not required under section 6045(f) with respect to the following payments: 1) Payments of wages or other compensation to an attorney from the attorney’s employer; 2) Payments of compensation or profits paid or distributed to its partners by a legal services partnership; 3) Dividend or corporate earnings and profits paid to shareholders by a legal services corporation; 4) Payments made by a person to the extent that the person is already required to report with respect to the same payee the payments or portions thereof; 5) Payments made to a nonresident alien individual, foreign partnership, or foreign corporation that is not engaged in trade or business within the United States; 6) Payments made to an attorney in the attorney’s capacity as the person responsible for closing a transaction for the sale or exchange or financing of any present or future ownership interest in real estate; 7) Payments made to an attorney in the attorney’s capacity as a trustee in bankruptcy under Title 11, United States Code.

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