It’s a holiday week so I’m re-publishing popular blog posts from the past.
This one from last fall shows how tax law can quickly entangle a person. I still haven’t found a solid answer to the question.
Originally published October 10, 2016
A few years ago I was a co-presenter at a seminar for HR professionals about 1099s. (I’ve been posting excerpts from my presentation here on this blog over the last few months.)
One of the attendees asked a question that threw me and my co-presenter off-guard. The question was: if we rent a conference room from a hotel, do we need to issue a 1099 to the hotel to report the amount of fees paid?
My knee-jerk reaction was to say no, because renting a conference room isn’t really a “rent expense” as in an office lease. An office lease would need reported on a 1099, but renting a conference room wouldn’t be. That was the answer my co-presenter and I came up with on the fly … but I never felt 100% confident with that answer.
I put that question on my list of things to research, and frankly I still am not confident in what the correct answer is.
First Question: What Type of Entity is the Hotel?
The first thing to determine is, what type of entity is the hotel? If the hotel is a corporation (S-corp or C-corp), this discussion is moot because you don’t give 1099s to a corporation*.
If the hotel is taxed as a partnership (which is entirely possible), then the hotel would be an entity you might need to issue a 1099 to.
*-The “no 1099s to a corporation” rule is true unless you paid the corporation for medical or legal services, in which cases a 1099 must still be issued.
Second Question: What is Rent?
Code Section 6041, which covers most 1099 situations, simply says a reporting form (a 1099) must be issued for payment of rent of $600 or more to any one person. (“Person” would also mean a partnership.) The term “rent” is not defined.
The regulations under Section 6041 don’t provide much more to go on either.
So we still don’t have an answer to the question of whether or not rental of a conference room constitutes “rent” for which a 1099 would need issued.
The instructions to Form 1099-MISC say to include rental payments for: real estate rentals paid for: office space; machine rentals; and pasture rentals. But those are just given as examples.
The other place to look is the IRS’s General Instructions for Certain Information Returns. Unfortunately, it doesn’t say much about rent other than to report it on a 1099-MISC and to see the instructions for Form 1099-MISC for more information.
So where does that leave us?
I think one could argue that renting a conference room is not really “rent” in the traditional sense. I would feel comfortable making that argument and saying a 1099 doesn’t need issued.
The problem is, if it’s not rent, what do you call that expense? Do you put it under “other expenses” and call it an “event expense” or something like that? That’s probably what I’d do.
Another viewpoint is: go ahead and issue the 1099. There’s no prohibition against sending a 1099-MISC, so neither you nor the hotel would be harmed by sending a 1099.
I hope this post shows the types of situations tax pros routinely encounter. I know it drives my clients crazy because it seems like I’m not giving them a “straight answer.” But so often, there is no straight answer — only shades of gray.
“This blog post, along with comments that may follow, should not be considered tax advice. Before you make final tax or financial decisions, please secure a professional tax advisor to give you advice about your unique situation. To secure Jason as your accountant, please click on the ‘Services’ link at the top of the page.”