Question: Joe and his two friends enjoy placing wagers on horse races. Joe has established an online betting account with one of the prominent gambling websites. For the Kentucky Derby, they pooled their funds and placed some bets, including the longshot that went off at 80 to 1 odds. Lo and behold, the following February, Joe received a Form 1099-K, Payment Card and Third Party Network Transactions, for $27,000. Because they had pooled their funds three ways and split the winnings evenly, how does Joe handle showing the income allocable to his two friends?
Answer: Generally, if you receive a Form 1099 for amounts that actually belong to another person, you are considered a nominee recipient. The nominee recipient, not the original payer, is responsible for filing the subsequent Forms 1099 to show the amount allocable to the other owners.
Furnish subsequent Forms 1099 by following these steps:
Prepare the same type of Form 1099 for each of the other owners, showing the amounts allocable to each. These forms will be sent to each owner and the IRS as well.
On each new Form 1099, list yourself as the “payer” and the other owner as the “recipient.” On Form 1096, Annual Summary and Transmittal of U.S. Information Returns, list yourself as the “Filer.”
Send the new Form 1099 along with Form 1096 to the IRS Submission Processing Center for your area. To find the address, reference the 2022 General Instructions for Certain Information Returns.
Mail each owner their Form 1099.
Note that a spouse is not required to file a nominee return to show amounts owned by the other spouse.
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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.