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I have a couple side gigs, and every January I get a little annoyed because I need to send out 1099-MISC forms for various payments to contractors and the like.

According to IRS rules you must send 1099-MISC if you made payments over $600 to individuals and LLCs not taxed as S-Corp or C-Corp.

I'm curious, why does the IRS:

  • require 1099-MISC for LLC taxed as an individual or partnership, and
  • not require 1099-MISC for LLC taxed as C-Corp or S-Corp?

It doesn't seem to make sense especially since there are a lot of single person LLC S-Corps out there.

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    "Ours is not to reason why, ours is but to file and cry." – Grade 'Eh' Bacon Jan 17 at 14:59
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Corporations file their own tax returns and have their own, more rigorous, reporting requirements and standards so they are relatively easier to audit (Imagine 1 corporate audit vs 1,000 single-member LLC audits, and more detailed records with the corporate returns). Additionally, corporations may use a fiscal year that does not match the calendar year, which would make 1099's cumbersome to handle (law was passed to require 1099's for corporations but repealed prior to having impact).

The 1099 requirement makes it harder for individuals to hide income from the IRS, even with 1099 requirements tax evasion is easier for (and I'm pretty confident far more prevalent among) pass-through entities than corporations.

  • True, but partnerships file their own returns and many C-Corps are not public and thus probably have similar reporting to pass-through LLCs. Though I suppose you have to draw the line somewhere... – gaefan Jan 17 at 22:59

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