Responsibilities of Director of Accounts Payable

26 CFR 1.6045-5; 26 CFR 1.6041-6;  71 Fed. Reg. 39548 (July 13, 2006)

This section of the tax regulations reflects changes made to the law by the Taxpayer Relief Act of 1997. The final regulations require those who make payments to attorneys aggregating $600 or more per calendar year in connection with legal services must file an information return for such payments. This requirement applies whether or not the services were performed for the payor, so for example, if the university was a defendant in a lawsuit, and was required to pay attorneys fees, this rule would apply. The filer must also provide to the attorney a written statement of the information required to be included on the return. Note that employers must report entire settlement amounts, including the amount paid to the attorneys, as income to the plaintiff, and also prepare a Form 1099 reporting the amount paid to the attorneys as income to the attorneys. Failure to do so may result in penalty payments to the IRS, a wel as obligation to pay back withholding. See the Holland and Knight article below.

Information required. The information return required under paragraph (a)(1) of this section must include the following information:
    (i) The name, address, and taxpayer identifying number (TIN) (as defined in section 7701(a)) of the payor;
    (ii) The name, address, and TIN of the payee attorney;
    (iii) The amount of the payment or payments (as defined in paragraph (d)(5) of this section); and
    (iv) Any other information required by the Commissioner in forms, instructions or publications.

These regulations are effective to payments made in or after 2007.

The  Director of Accounts Payable is in charge of reporting settlement amounts, including the amounts paid to attorneys, as income to the plaintff, and must also prepare the Form 1099 for all payments to attorneys aggregating $600 or more per year, including the amounts paid in settlements.

Related Resources
Q and A on Tax Obligations Regarding Settlement Payments 

See also Holland and Knight: The Supreme Court weighs in on Taxability of Contingent Fees in Employment Cases***

Foreign students and scholars do not have the same tax exemptions as U.S. students and employees.  Most foreign student and scholar income is subject to withholding. The I.R.C. requires a determination as to whether or not the foreign person is a nonresident alien or a resident alien.  The test is not the same as for immigration purposes.  Resident aliens are subject to the same withholding and filing requirements as U.S citizens.  For tax purposes, a person is a resident alien if they are a lawful permanent resident of the U.S., i.e., they have a green card, or they meet the substantial presence test.  This is met if the person has been present in the U.S. at least 31 days during the calendar year and 183 days in total during the current year and the two preceding calendar years.  The number of days in the current year are counted in full, while the number of days in the first and second preceding years are counted one-third and one-sixth respectively.  Students on an F, J, M or Q visa are able to exclude days or presence in the U.S. for the substantial presence test for a period of five calendar years.  Teachers or trainees on a J or Q visa may exclude days of presence in the U.S. for two calendar years.

The Director of Accounts Payable processes all honoraria, including those for foreign scholars. The Director of Accounts Payable ensures that the form is complete, and that information on tax treaties is included.