There are some exemptions to 1099–S reporting. Some exemptions require proof or evidence of their exempt status. The most common exemptions are:

• Seller is a corporation. Sellers who are corporations are automatically exempt from 1099–S reporting.
• Transfer as a result of a foreclosure or Deed in Lieu of Foreclosure. Transfers that occur as the result of a foreclosure or because the homeowner is conveying the property to their lender via a Deed in Lieu of Foreclosure.
• An individual seller qualifies to sign the Certification for No Information Reporting.
• Seller is an exempt volume transferor.

Transferors who are a corporation, governmental unit (including a foreign government) or an international organization are automatically exempt from reporting the sale on IRS form 1099–S. Settlement agents do not have to file a 1099–S nor include any further documentation in the file to prove their exempt status.

If the beneficiary of a note secured by a Deed of Trust forecloses on the property or accepts a Deed in Lieu of Foreclosure from the owner, that transfer is not reportable unless the owner is paid for any equity over and above the amount due on the note.

Use of the Certification for No Information Reporting was fully explained in the March 2016 edition of Fraud Insights.

Transactions which are exempt should be marked as exempt in your production system. This ensures the file does not keep coming up as an exception on the 1099 reports.

In next month's edition we will explain the exempt volume transferors and how to document their exempt status.