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Royalty Income Signed Over to Family Member

jnkniffencpa
Level 1

I have a client that receives royalty checks several times throughout the year. The income was supposed to be for her niece but wasn't set up that way because of her being a minor. When shereceives the checks, she immediately signs the checks and deposits them directly into her niece's trust account. Her previous accountant told her that with good records, she didn't have to report that income on her return but instead it would be on her niece's trust return.

I have looked but have been unable to find anything that will confirm that treatment. Can someone point me in the right direction or explain how I would report it? Or, is this not allowed?

Jeremy

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Happy-Tax
Level 4

If your client receives a 1099 for the royalty payments, trouble could be brewing.

If 1099's are involved, look at the instructions for nominee recipients and nominee distributions in the Form 1099 instructions. Those procedures will correct and prevent any problems insofar as the IRS is concerned.

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5 Replies 5
IRonMaN
Level 15

"Her previous accountant told her that with good records, she didn't have to report that income"

But the IRS can't see those good records.  Out of curiosity, what kind of dollars are we talking about each year?

ACME Taxes, Tatoos, Tires and Tomatoes (I had to get rid of the turtles - they kept running away)
jnkniffencpa
Level 1

Under $2k per year, so not big money.

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BobKamman
Level 14

@IRonMaN "Out of curiosity, what kind of dollars are we talking about each year?"

Out of an abundance of curiosity, what kind of royalties are we talking about?  Music?  Books? Gas?  Rare earths?

Happy-Tax
Level 4

If your client receives a 1099 for the royalty payments, trouble could be brewing.

If 1099's are involved, look at the instructions for nominee recipients and nominee distributions in the Form 1099 instructions. Those procedures will correct and prevent any problems insofar as the IRS is concerned.

View solution in original post

Terry53029
Level 12
Level 12

Generally, if you receive a Form 1099 for amounts that actually belong to another person, you are considered a nominee recipient. You must file a Form 1099 with the IRS (the same type of Form 1099 you received) You also must furnish a Form 1099 to  the other owner. File the new Form 1099 with Form 1096 with the Internal Revenue Service Center for your area. On each new Form 1099, list yourself as the “payer” and the other owner as the “recipient.” On Form 1096, list yourself as the “Filer. Royalties are reported on 1099MISC, so you have to file a 1099MISC.