Bulletin: NL000009

Dear Associates:

The IRS has revised the regulations on 1099-S reporting for real estate sales and exchanges. These regulations apply to real estate transactions with dates of closing on or after January 1, 1991.

The following are some of the key elements of these regulations:

1. The reporting person does not need to report if the seller is a corporation, a governmental unit, or an exempt ?volume transferor?. A reporting person may treat a transferor as a corporation if the transferor contains the words Incorporated, Inc., Corporation, Corp., or P.C. (but not Company or Co.). The reporting person may rely on the ?volume transferor? exemption only if the reporting person receives a Certification of Exempt Status (see referenced forms at the end of this bulletin).

2. The ?reporting person? must report on ?Reportable Real Estate?. This includes improved and unimproved land, condominiums, and stock in cooperative housing corporations. The property subject to reporting includes residential property, commercial property and agricultural property. The only exempt real estate is ?natural resource? (e.g., ores or timber), crops or burial plots.

3. The reporting person must report on sales or exchanges. Reporting must occur even though no cash changes hands. Transactions that are excluded from reporting are gifts or bequests (where no loan is assumed or taken subject to), financing and re-financing, foreclosures or transfers in lieu of foreclosures, and de minimis transfers (consideration of less that $600.00).

4. Reporting is required on present and future real estate interests. These include fee simple interests, life estates, reversions, remainders, easements, time-shares and leaseholds (where the remaining term is at least 30 years including renewal options). Reporting is not required on options to acquire real estate.

5. The reporting person is the first of the following who participates in the transaction:

a. The settlement agent on the HUD-1 Form or the person who prepares any other closing statement;

b. The attorney for the buyer if the attorney is present at the delivery of the buyer's note or significant portion of the cash payment, or if the attorney prepares the documents transferring title;

c. The attorney for the seller if the attorney is present at the delivery of the buyer's note or significant portion of the cash payment, or if the attorney prepares the documents transferring title;

d. The title or escrow company that disburses the most significant proceeds;

e. The mortgage lender which advances new funds in connection with the sale;

f. The seller's broker;

g. The buyer's broker;

h. The buyer.

6. If there are multiple sellers, there must be separate reporting on each seller. The party reporting must report the entire gross proceeds as to each transferor where there is no allocation of gross proceeds. The reporting person must request that multiple sellers allocate the proceeds. If the sellers disagree as to allocation of the proceeds or do not specify an allocation, then the reporting person must show the total gross proceeds of the sale on each seller's report. If one or more of the sellers respond and the responses do not conflict, the reporting person must comply with the allocation it receives. The reporting person does not need to request an allocation of gross proceeds if the only transferors are husband and wife. The reporting for husband and wife as seller may be made on either spouse.

Example: Susan Smith and Donna Brown sell a tract for $200,000. The closing title company requests in writing an allocation from each seller. Only Susan Smith responds. She allocates $25,000 to herself and $175,000 to Donna Brown. The title company should report in accordance with that allocation.

7. The reporting person must secure the following information:

a. The name, address and taxpayer identification number (TIN) of the transferor;

b. A general description of the real estate (e.g., complete address);

c. The date of closing;

d. The entire gross proceeds with respect to the transaction or allocation of gross proceeds;

e. Whether the transferor receives property or services other than cash or cash equivalent as consideration;

f. Whether the transferor receives contingent payments that cannot be determined with certainty (such as contingent interest or shared appreciation without caps);

g. The real estate reporting person's name, address and TIN; and

h. Any other information required by the Form 1099 or instructions.

9. If the sale or exchange involves the transfer of real estate and other assets, the amount attributable to both is treated as the gross proceeds.

10. If the transfer involves contingent payments (e.g., contingent interest,. appreciation, share of cash flow), the reporting person must report the ?maximum determinable proceeds? as the ?gross proceeds?. This is any maximum or minimum of payments. If there is no cap, or if there can be additional amounts owed over a minimum level, the reporting person also must note on the 1099-S that the payments cannot be determined with certainty. See examples in attached regulations.

11. An installment land contract is reportable when the contract is signed, not when the contract is paid off.

12. The reporting person must file the report with the IRS after December 31 of the year of closing and by February 28 of the following year.

13. The reporting person who does not receive the transferor's TIN is not subject to penalties if the reporting person made a correct solicitation of the TIN.

14. The reporting person must finish the transferor a written statement of the information required to be shown on the return. This may be done by furnishing a copy of the completed 1099, or substitute, or Uniform Settlement Statement that satisfies the regulations. The copy may be given to the transferor in person or mailed to that person at the transferor's last known address. The reporting person must furnish the copy before February 1 of the following calendar year.

15. The new regulations continue the statutory prohibition on a separate charge for 1099-S reporting.