1099 for retainer paid to an attorney

Forum|Forum|6 years ago
February 11, 2020
2 replies
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Our company paid a $5,000 retainer to an attorney in 2019. We issued a 1099 reporting $5,000 in box 7. The attorney received the 1099 and asked us to issue a corrected 1099 showing $0 in box 7 because the $5,000 retainer is going to be refunded, but not until 2020. Is a corrected 1099 for 2019 appropriate? How should this be reported correctly?

Thanks!

TomK2023

Payments to attorneys. The term “attorney” includes a law firm or other provider of legal services. Attorneys' fees of $600 or more paid in the course of your trade or business are reportable in box 7 of Form 1099-MISC, under section 6041A(a)(1).

In short, a retainer is a liability that must either be repaid or earned. ... In other words – from a tax perspective – there's a good chance the law firm must pay taxes on the client retainer when they receive payment.

I would leave the 1099 as is; you have not received a refund yet (and definitely not in 2019)

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verteve6lhAuthor

Thanks Tom, I appreciate the quick response! That confirms my suspicion of not changing the 2019 1099. Now for 2020, there are 2 scenarios:

Scenario 1: If the $5,000 retainer is refunded in 2020, is there anything that needs to be reported?

Scenario 2: The $5,000 is refunded in 2020, but the attorney also bills us $2,000 for services performed (for the same case the $5,000 retainer was meant for) and we pay in 2020. Would we report $2,000 in 1099 box 7 in 2020, even though we already reported the retainer in 2019?

RobertG

Scenario 1: If you deducted the $5,000 in 2019 you would have to report it as income in 2020, and issue no 1099.

Scenario 2: If you deducted the $5,000 in 2019 you would have to report it as income in 2020, then take a deduction for $2,000, and issue a 1099 for $2,000.

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JoeSoCal12

I have a similar situation. We paid $3250 for a retainer in 2022, and only when the consultant received the 1099 did they claim that $500 was earned services and the remaining $2750 needed to be returned (one year later). We issued a 1099 based on the full retainer paid, and the consultant said they "forgot" to mail the unearned $2750 (last year). To date, the refund has not been received. If it does show up in the next few days, one year later, do I void the 1099, as the net payout will be reduced to $500? Advice, please, and thank you! Can't the attorney claim an adjustment on his 2022 tax return for the refunded difference if we truly end up receiving that refund of the retainer?