Generally speaking, the person responsible for closing the transaction is the person responsible for reporting the sale to the IRS. Intentional disregard comes with heavy fines; $10,000 for every occurrence. As a result, the Company takes this duty very seriously. But what does a settlement agent do if the seller insists on reporting the sale in the name of someone other than the vested seller?
The Company would allow the seller to file the 1099–S on their own by entering into a designation agreement. Per the IRS 1099–S Instructions the settlement agent can enter into a written agreement at or before closing to designate who must file Form 1099–S for the transaction. The agreement must identify the person responsible for filing. It is important to note the person designated cannot be just anyone; especially not the seller. The person designated may be the person responsible for closing the transaction or the buyer's or seller's attorney.
The designation agreement may be in any written form and it must:
- Identify by name and address the person designated as responsible for filing;
- Include the names and addresses of each person entering into the agreement;
- Be signed and dated by all persons entering into the agreement;
- Include the names and addresses of the buyer and seller, and
- Include the address and any other information necessary to identify the property.
Each person who signs the agreement must keep it for four years. Settlement agents should never enter into a designation agreement without approval from your National Escrow Administrators.