Do I owe my former business partner a tax document for payments I made to him last year for a Stock Redemption Agreement?

[knoc90236]

Tax Documents for Stock Redemption Agreement payments

[DianeW777]

If you paid your former business partner for stock then you are not the entity that should issue a 1099-B.  Actually, an individual is not required to issue a 1099-B.  

• A broker or barter exchange must file Form 1099-B for each person where a sale was initiated in their brokerage.
• About Form 1099-B, Proceeds from Broker and Barter

Please update here if you have additional information or questions and we can help.

[knoc90236]

Actually, my C-Corp paid him. Does my C-Corp owe him a 1099 or any other tax documents?

[DianeW777]

If your partner retired and sold his shares, the IRS treats a full redemption of C corporation stock as a sale. Did your C-Corporation buy out your former business partner's full stock in the company?

Form 1099-B may be required if the company is considered a broker.   

1. Per the IRS, a broker is any person who “effects sales to be made by others.” The definition includes corporations that regularly stand ready to redeem their own stock or retire their own debt.    
2. If a company purchases shares of stock from shareholders on an irregular basis and does not actively pursue or stand ready to make redemptions, it would not be required to file Form 1099-B.  
3. However, if a company promotes a buy-back program of shareholders’ shares, it is considered a broker and would be required to file Form 1099-B. There is no dollar threshold for filing Form 1099-B.  
4. In fact, separate transactions and different types of securities are required to be reported on separate 1099-B forms, or substitute statements must be used. Form 1099-B must be provided to recipients by February 15 of the year following the transaction year.

Tax liability for the exiting partner depends on whether the person has a cost basis in the stock.

@knoc90236 

[Edited: 02/24/2024 | 3:58 PM PST]

[knoc90236]

Ok, let me explain my situation. He and I started a company 2 years ago as a real estate brokerage, C-Corp. We decided that the company wasn't working out for him. So, in order for him to leave, he wanted me to reimburse him all of his costs in the business, including his legal cost, plus what he estimated would be his tax costs of those payments. Now he wants some sort of a tax document for those payments. By the way, which I had to take out a loan to pay him. He has been paid in full.

[knoc90236]

Does anybody have a response to that last message? Here it is again:

Ok, let me explain my situation. He and I started a company 2 years ago as a real estate brokerage, C-Corp. We decided that the company wasn't working out for him. So, in order for him to leave, he wanted me to reimburse him all of his costs in the business, including his legal cost, plus what he estimated would be his tax costs of those payments. Now he wants some sort of a tax document for those payments. By the way, which I had to take out a loan to pay him. He has been paid in full. So do I owe him any tax documents and if so what documents?

[DaveF1006]

You could issue him a 1099 MISC for him to report all of his reimbursements, legal costs, and tax costs. Here is more information about how to file a 1099 MISC including complete instructions for filing.

About Form 1099-MISC

Instructions for 1099 MISC and 1099 NEC