Q&A #96 – Must a Form 1099 be issued for a grant made to a nonprofit organization?
Question: My 501(c)(3) nonprofit organization recently made its first grant to another 501(c)(3) nonprofit organization. Are we required to provide a Form 1099 for this grant?
Answer: Grants made to nonprofit organizations are usually not subject to Form 1099 reporting because nonprofit payees typically fall within certain exceptions under the Form 1099 rules. Specifically, Form 1099 reporting is generally not required with respect to payments made to corporations or tax-exempt organizations. In this case, both exceptions probably apply.
The Form 1099 reporting rules stem from Section 6041 of the Internal Revenue Code and the related Treasury Regulations. With certain exceptions, the Form 1099 requirements apply to payments made by persons and organizations in the course of carrying out a trade or business (the term “trade or business” includes the activities of nonprofit organizations). Reporting is generally required for payments totaling $600 or more to any one recipient during the calendar year. See Treas. Reg. § 1.6041-1.
However, as we’ve discussed previously, not every payment is required to be reported on Form 1099. In the case of grants made to nonprofit organizations, there are two exceptions that should be considered.
First, a Form 1099 is not required for payments made to a corporation or a limited liability company that is treated as a corporation for tax purposes (although such payments must be reported on Form 1099 if made for legal services, medical or health care services, or certain other special categories as described in the Form 1099 instructions). See Treas. Reg. § 1.6041-3(p)(1). Most (but not all) nonprofits are organized as “nonprofit corporations.” Consequently, reporting of grants will often not be required due to the exception for corporations.
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Second, and most specific to your situation, payments made to tax-exempt organizations are not subject to Form 1099 reporting. See Treas. Reg. § 1.6041-3(p)(2). Most (but not all) nonprofits qualify as tax-exempt organizations, so this exception will usually apply when making grants to a nonprofit organization.
Planning Tip – Get in the habit of requesting and obtaining a Form W-9 up front from all service providers, contractors, and other persons, organizations, and companies that will receive payments from your organization. Do not wait until the end of the calendar year. While there may be exceptions to the Form 1099 requirements that apply to certain payees, you should not automatically assume that they qualify. The Form W-9 will give you the proof and documentation that you need to verify whether a Form 1099 is required, and obtaining this information early will improve compliance and efficiency.
At times, the Form 1099 requirements can be surprisingly complicated and ambiguous. However, with respect to grants made to nonprofit organizations, the answer is relatively uncomplicated and straightforward.
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You might also be interested in:
Q&A #111 – How should nonprofits fill out the Form W-9?
Q&A #81 – Must a Form 1099 be issued for a need-based grant made to an individual?
