Who Should Issue 1099s? The New Or Previous HOA Management Company?

Who should issue 1099 forms when a homeowners association has switched management companies? Although most HOA boards don’t deal with this problem, it happens occasionally. If it does happen to your association, it helps to know how to proceed.

Who Should Issue 1099?

Homeowners associations must file taxes, including the issuance of 1099. This federal tax form reports non-employee income, otherwise known as miscellaneous income. Associations generally use Form 1099 (1099-MISC and 1099-NEC) for rentals and non-employee compensation.

The 1099 forms require pertinent information such as the recipient’s name, address, social security number, and tax ID number. To make filing and completing the form easier, an HOA should maintain proper documentation. Keep records of all transactions, including invoices, check stubs, and receipts.

The purpose of 1099 tax forms is to minimize tax liability for the association. This cancels out any profits subject to taxes, allowing an HOA to retain as much funds as possible.

Who Should I Issue a 1099 to?

An HOA or condominium should send a 1099-MISC form to every vendor to whom they paid rent fees during the year. Meanwhile, a 1099-NEC form is used for payments made for services to non-employees. Both forms are used for annual payments of $600 or more. Anything below that amount does not need to be reported to the IRS.

1099 Responsibility: Previous or Current HOA Management Company?

A professionally managed HOA or condo association typically delegates tax reporting and filing duties to its management company. Most HOA management companies offer tax assistance services, including issuing 1099 forms.

However, every now and then, an HOA switches management companies. When that happens, there is the dilemma of who should issue 1099 forms to vendors who served the HOA prior to the transition — the previous management company or the current one.

To determine responsibility, there are a few key steps to take.

Refer to the Old Contract

First, reviewing the HOA’s contract with the previous management company is important. The contract should have outlined the company’s specific obligations to the association, including tax filing.

Contact the Previous HOA Management Company

If the current management company transfers the blame to the previous one, which is a likely occurrence, then the HOA board should contact the previous company. The HOA board should contact their previous manager and see what they can do about the problem.

It is worth noting that the previous company will probably charge an extra fee for this service. As such, your association should make preparations and allocate a portion of its budget.

Consult a Tax Professional

If neither company wants to shoulder the responsibility, it is best to turn to a tax professional. An accountant or tax preparer should be able to offer advice or assistance to your HOA or condo association.

The Consensus Is Clear

While several variables could be involved, the general consensus is that the old management company should be responsible for issuing 1099s for any services covered during their tenure. It is also important to note that the new management company may not have all the necessary information that the previous company does. Thus, the new company can’t confirm the accuracy of the information.

Since the contract was executed before the new company took over, the previous company should generally bear the responsibility. However, as said above, your association should expect to pay a fee for this service.

Avoiding the Problem

Although there is a way to resolve this issue if it arises, it is better to avoid it altogether from the beginning. To ensure this kind of blame game does not happen to your HOA, there are two tips you can apply.

1. Triple Check the Contract

The management contract is the first thing that either party will check when they encounter this situation. Therefore, your board should ensure that your contract is ironclad and contains contingencies for such a thing. Of course, checking your contract before you sign it is essential. It helps to have a lawyer review the contract to ensure it works out in the HOA’s favor.

2. Craft a Transition Plan

A transition plan is vital when switching to a new management company. This plan should indicate how the HOA will transition from the old company to the new one. The old company should hand over all essential documents and information to the new company, including accounting and tax records. This way, the new management company can file the 1099s for the association if necessary.

Who Should Issue 1099 Forms? Answered!

There is not always a clear or universal answer to this tricky situation. However, the old management company should bear this responsibility in general since they were in charge of the services being delivered.

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