Dear CPARealtor88:
I am managing broker. I have more than 20 agent in my office. Here is my question, I had been ask many CPAs in the past, some said the rebate we pays to buyer need to report to 1099misc line 3. Some of them don't have answer. My questions to you is
1. If rebates appears on the HUD-1 Settlement Statement under broker credit, on HUD-1 my brokerage company commission is always is overall commission, but check my brokerage recieved is already minus rebate amount. How IRS know we didn't made all amount if we don't report any form to IRS and tell them we didn't get this rebate portion? According to my understanding, all HUD-1 sent to IRS.
2. Under broker credit field on HUD-1 Settlement Statement, if the sell is buyer obtaining loan, normally this field was using by lender to include refund of closing cost to make zero closing cost loan. Therefore, sometime, lender refused to share this field with Real Esate Broker. Then the check my brokerage recieved will be overall commission, then we have to cut a rebate check to buyer after closing. Now, If we don't issue any 1099 report to IRS, I can very sure 100% rebates buyer will be simply ignore this amount. Then IRS will lost many tax revenues. How do you think IRS sees it and make sure buyer will either report to reduce the basis of real estate or other item?
3. Many years ago, when Redfin.com first developed, they were offering up to 50% rebates and they put a IRS issue special rule to Redfin only (Redfin paid someone CPA or Lawyer 10000 to get this letter) and said they don't have to report 1099, but that letter didn't said the letter is applying to all real estate agent. The letter was only applying to Redfin.com at that time, after that there are many agents who had following the redfin.com rule and not to report 1099 and later got audit and have to pay penalty. I were like to know why agent get audit and had to pay penalty. Those agent has put negative words on redfin.com for this page, later redfin.com closed this pages. All of those agents who had been get audit and paid penalty and has been always send out 1099 ever since.
My biggest question is that HOW CAN IRS ENFORCE BUYER REPORT THE REBATE AS ADJUSTMENT OF REAL ESTATE BASE?
