Mergers and acquisitions (M&A) are complex transactions that involve not only strategic and financial decisions, but also compliance with IRS information reporting rules. One area that can be overlooked is Form 1099 reporting. Failing to address it properly can lead to penalties, delayed closings, or post-transaction disputes.
Why 1099 Reporting Matters in M&A
When two businesses merge or one acquires another, the surviving or acquiring entity often assumes the responsibility for filing Form 1099 for reportable payments made during the year — even for payments issued before the transaction closes. Without a clear plan, payments to contractors, vendors, or other non-employees may go unreported or be reported incorrectly.
Key 1099 Issues in M&A Transactions
1. Responsibility for Pre-Closing Payments
- Parties must determine who files 1099s for payments made before the closing date.
- In many deals, the seller handles 1099 reporting for pre-closing payments, while the buyer handles post-closing payments.
- This should be explicitly stated in the purchase agreement.
2. Combining Vendor Records
- Vendor master files from both companies need to be reviewed for duplicates and missing taxpayer information.
- Make sure Form W-9 records are complete for all vendors to avoid backup withholding issues.
3. Consistent Payment Year Reporting
- The IRS requires that payments made in a calendar year be reported for that year, regardless of ownership changes.
- If a vendor was paid by both companies in the same year, their 1099 may need to combine totals or be issued separately, depending on the deal terms.
4. Special Rules for Attorneys and Settlements
- Attorney fees of $600 or more must be reported on Form 1099-NEC or 1099-MISC, even if the firm is incorporated.
- If an M&A deal involves legal settlements or payouts, ensure those are properly categorized and reported.
5. Handling Independent Contractors
- Contractors who worked for the acquired company before the deal may continue under the new owner — their total annual payments may need to be combined for reporting.
- If EINs change post-closing, clear instructions are needed to avoid duplicate or missing 1099s.
Best Practices to Avoid Penalties
- Address 1099 Obligations in the Purchase Agreement – Clearly define who is responsible for pre- and post-closing reporting.
- Conduct a Vendor File Audit – Verify W-9 information and clean up duplicates before combining systems.
- Coordinate with Tax Advisors – Ensure proper reporting methods, especially when multiple EINs or payment systems are involved.
- Meet Filing Deadlines – Most 1099 forms must be issued to recipients and filed with the IRS by January 31 of the following year.
- Document the Process – Keep records of payment histories and reporting responsibilities in case of IRS inquiries.
The Bottom Line
M&A transactions often focus on valuation, integration, and growth — but 1099 compliance should not be an afterthought. By planning ahead, clearly defining responsibilities, and maintaining accurate vendor records, both buyers and sellers can avoid penalties and keep the deal process smooth.