1099

[jennysavakus6320]

No 1099, will this be lost in the shuffle?

MANY year old estate. Selling a property, lawsuit among siblings....

In order to allow the sale to proceed, all siblings agreed for the proceeds to be held in escrow. An attorney who was representing the property buyer agreed to hold funds (~250k) in escrow.

A few months later, a lawsuit was filed. The same attorney transferred the escrow funds into a court account. Court then began holding the proceeds.

Case settles, funds disbursed by the court (there is a specific name, prothonotary I believe). But no 1099 have been receded. This was oct 2023, now march 2024.

• Since the original payment by buyer went to atty, was that a reportable event? I think no. (Funds were in escrow at this point.)
• Since atty then transferred funds to the court, there was no breakdown of who got what- so also not reportable.
• When court divided up the funds pursuant to a court(judge) order, they just paid the funds.

My questions:

• At which step along the way was reporting required?
• Is there a mechanism in place where this (potential) 'miss' may be caught?

Thanks.

[PatriciaV]

Until the funds are paid to the plaintiffs (if any), there is not a taxable event. In most cases, Form 1099-MISC would be sent if any taxable income resulted from this litigation. Contact the attorney to confirm.

[jennysavakus6320]

The funds were disbursed in November of 2023.

[BillM223]

The general rule is that you report income when you get "constructive use" of the funds.

If you got constructive use of the funds (i.e., cashed a check and put the funds into your checking account) in November 2023, then this is reportable in tax year 2023.

I do not know how (i.e., on what form) the court reports the distribution of the funds to you, the taxpayer, but as Patricia says, a 1099-MISC seems most likely.

If you never get a 1099-MISC, you can report this by "Wages & Income->Less Common Income->Miscellaneous Income".