No, we do not believe your bank would be responsible for filing a 1099-MISC form as the payor for a payment made to an attorney who provides settlement services for a loan closing.

When your bank makes a payment of $600 or more to a non-employee on behalf of someone else (such as a borrower), the IRS rules treat you as the “payor” and require you to file a 1099-MISC if: (1) your bank performs management or oversight functions in connection with the payment, or (2) you have “a significant economic interest in the payment (i.e., an economic interest that would be compromised if the payment were not made, such as by creation of a mechanic’s lien on property to which the payment relates, or a loss of collateral).”

We do not believe your bank is performing any management or oversight functions in connection with the payment to the attorney, nor does your bank have a significant economic interest in the payment. In an example in the IRS rules, a mortgage company that makes disbursements to contractors performing repairs on a property “has a significant economic interest in the payments because the purpose of the arrangement is to ensure that property on which [it] holds a mortgage is repaired or replaced.” In another example, a bank that sends funds to a title company to be disbursed to contractors in connection with a construction loan “has a significant economic interest in the payment as a mortgagee.”

Here, we do not believe that you have a significant economic interest in the payment since your bank is not paying contractors who could impose mechanic’s liens or otherwise compromise your bank’s security interest in the property. As a result, we do not believe you would be responsible for filing a 1099-MISC form for the payment to the attorney.

For resources related to our guidance, please see:

• Income Tax Regulations, Return of information as to payments of $600 or more. 26 CFR 1.6041-1(a)(1)(i) (“Except as otherwise provided in §§ 1.6041–3 and 1.6041–4, every person engaged in a trade or business shall make an information return for each calendar year with respect to payments it makes during the calendar year in the course of its trade or business to another person of fixed or determinable income described in paragraph (a)(1)(i) (A) or (B) of this section. For purposes of the regulations under this section, the person described in this paragraph (a)(1)(i) is a payor.

(A) Salaries, wages, commissions, fees, and other forms of compensation for services rendered aggregating $600 or more.

(B) Interest (including original issue discount), rents, royalties, annuities, pensions, and other gains, profits, and income aggregating $600 or more.”)

• Income Tax Regulations, Return of information as to payments of $600 or more. 26 CFR 1.6041-1(e)(1) (“A person that makes a payment in the course of its trade or business on behalf of another person is the payor that must make a return of information under this section with respect to that payment if the payment is described in paragraph (a) of this section and, under all the facts and circumstances, that person

(i) Performs management or oversight functions in connection with the payment (this would exclude, for example, a person who performs mere administrative or ministerial functions such as writing checks at another’s direction); or

(ii) Has a significant economic interest in the payment (i.e., an economic interest that would be compromised if the payment were not made, such as by creation of a mechanic’s lien on property to which the payment relates, or a loss of collateral).”)

• Income Tax Regulations, Return of information as to payments of $600 or more. 26 CFR 1.6041-1(d)(2) (“Fees for professional services paid to attorneys, physicians, and members of other professions are required to be reported in returns of information if paid by persons engaged in a trade or business and paid in the course of such trade or business.”)

• Income Tax Regulations, Return of information as to payments of $600 or more. 26 CFR 1.6041-1(e)(5), Example 2 (“Mortgage company D holds a mortgage on business property owned by E. When the property is damaged by a storm, E's insurance company issues a check payable to both D and E in settlement of E's claim. Pursuant to the contract between D and E, D holds the insurance proceeds in an escrow account and makes disbursements, according to E's instructions, to contractors and subcontractors performing repairs on the property. D is not performing management or oversight functions, but D has a significant economic interest in the payments because the purpose of the arrangement is to ensure that property on which D holds a mortgage is repaired or replaced. D is subject to the information reporting requirements of section 6041 with respect to the payments to contractors.”)

• Income Tax Regulations, Return of information as to payments of $600 or more. 26 CFR 1.6041-1(e)(5), Example 12 (“The provisions of this paragraph (e) are illustrated by the following examples: . . . Example 12. Bank contracts with Title Company with respect to the disbursement of funds on a construction loan. Pursuant to their arrangement, the contractor sends draw requests to Title Company, which inspects the work, verifies the amount requested, and then sends the draw request to Bank with supporting documents. Bank pays Title Company the amount of the draw request, and Title Company insures Bank against any loss if it cannot obtain the necessary lien waivers. Bank has a significant economic interest in the payment as a mortgagee, and Title Company exercises management or oversight over the payment. Since Title Company is closest in the chain to the contractor, Title Company should report the payment, unless the parties agree in writing that Bank will report the payment.”)