Why would a lender request a W9?

[OSU Beavers]

Because they are required to send you a 1099 by the IRS.

 

[George Ellerman]

Had one ask for a W9 today and this is not something I typically supply to customers. They mentioned that they need to file it as an expense but the borrower is the one that paid for the appraisal. If I were to pay for a professional service from someone I would not ask for a W9 from them. what is going on here?

What is IRS Form W-9?
Updated for Tax Year: 2012
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Anytime you hire someone, or engage in a business relationship with an independent contractor, you must generate an IRS form W-9, Request for Taxpayer Identification Number and Certification.
If you're an employer, or even just making a payment to a vendor, you've got some responsibilities to Uncle Sam. Anytime you hire someone, or engage in a business relationship with an independent contractor, you must generate an IRS form W-9, Request for Taxpayer Identification Number and Certification.
You need to have your employee or contractor fill it out and sign it so you know their Social Security number or taxpayer identification number of U.S. persons attempting to work in the United States. You don't need to send it in to the IRS. Keep it for your records, so you'll have it when you generate your W-2s and 1099s.
Who is a "U.S. person??
The term "U.S. persons" doesn't just refer to "people." In legal terms, a U.S. person can, of course, be an individual, as long as he is a U.S. citizen or legal resident. It could also be a corporation, an association or company, or an estate or trust organized under the laws of the United States. Foreign estates are not "U.S. persons."
When do I use a Form W-9?
Use Form W-9 to collect the taxpayer ID number or Social Security number of any U.S. person you plan to engage in a business activity. Use a Form W-8 for foreign entities or individuals, or Form W-7 for individuals who become U.S. residents for tax purposes but who aren't eligible for a Social Security number.
What is included on a Form W-9?
Form W-9 asks for the taxpayers' name, business name and taxpayer ID number, which is either the taxpayer's Social Security number or employer identification number. The signer, or "payee," must sign the form certifying that the information is correct, and that the signer is either a U.S. citizen, resident alien, or the representative of a company, corporation, partnership or other U.S. person.
What happens if a W-9 is not filled out?
If you don't fill out a W-9 duly requested by an employer, partner or other entity duly entitled to your taxpayer ID information, you may be penalized $50 for each instance. You may also be subject to backup withholding, which means the payor will withhold 28 percent of your check and forward the proceeds to the IRS. If you file a false statement that results in no backup withholding, and you are not exempt from the backup withholding requirement, you may be subject to a $500 penalty per incident. If you falsify information, you may be prosecuted for criminal behavior, and even imprisoned.
If you receive a W-9 from a worker or vendor, and you misuse that confidential information or disclose it improperly, you may be subject to criminal and civil penalties.
In other words, if you’re asked to complete a W-9 form by someone you’re doing work for, it’s best to do it promptly and accurately.

 

[TxArmadillo]

Without your W9 information provided how can they send you a 1099?


If you do about 600 worth of business a year they are supposed to do so.

Bingo! This is the answer.

 

[Pittsburgh Pete]

why do I care about 1099's????? As a business owner I am responsible for reporting my own taxes. I don't need 1099's to do so. How can a customer that orders a product from my company decide that they are only going to pay a portion of the price for it after a set price has been agreed upon? how can they possibly withold an agreed upon price once the product has been sent?

If they don't have a valid W-9, they would be required to deduct back-up withholding.

 

[Pittsburgh Pete]

Because the IRS says so....The IRS approves of only two employment relationships. One is confirmed with a W4 and the other, you guessed it, the W9. Business 101.

The lender, in this case, needs something to defend their choice of payment to you, the contractor.

That would be two too many "W's"--you obviously meant a W-2.

 

[Pittsburgh Pete]

FYI:

Definition: Backup withholding is a type of withholding for federal income taxes on certain types of income. Backup withholding may be mandatory in certain circumstances. Most taxpayers, however, are exempt from backup withholding.
What is Backup Withholding?
Income tax may be withheld at a flat rate of 28% on the following types of income:

• Interest,
• Dividends,
• Patronage dividends,
• Rents
• Royalties,
• Commissions and fees paid to independent contractors,
• Payments from brokers on stock and bond transactions,
• Payments from fishing boat operators.

Who's Exempt from Backup Withholding?
US citizens and resident aliens will be exempt from backup withholding if:

• You properly report your name and Social Security number to the payer using Form W-9, and that information matches the IRS records,
• You have not been notified by the IRS that you are subject to mandatory backup withholding.

When does the IRS require Backup Withholding?
The IRS requires backup withholding if your name and Social Security number on Form W-9 does not match their records. They often require backup withholding if you owe federal income taxes, or if you have not reported all your interest, dividends and other income on your tax returns.
The IRS will notify you if you are required to have backup withholding. They will also notify any payers if your name and Social Security do not match the IRS records.

 

[Pittsburgh Pete]

I appreciate all the responses but I am still trying to find a direct answer. This seem like business 101 to me. Customer orders a product from Company A for the set price. Company A gives the product to the customer and the fee is paid. Company A does not work for the customer as an employee or is set up under the company as an independent contractor. Company A is responsible for reporting their own financials for tax purposes. So the question still remains, why is the W9 being requested?

Must be covered in Business 102?

Wish you were right, could have saved me some time last week as I prepared and sent out 1099s to people we subcontracted with.

 

[BRCJR]

That would be two too many "W's"--you obviously meant a W-2.

No, a W2 is what you get from your employer for your filing of a tax return.

You obviously do not know a W4 is what an employee completes at time of hiring.

A W9 and/or W4 are the documents completed indicating the relationship between the parties.

 

[ockyappraiser]

" How can a customer that orders a product from my company decide that they are only going to pay a portion of the price for it after a set price has been agreed upon? how can they possibly withold an agreed upon price once the product has been sent?"

First. . .they are not buying a product from you. . .they are engaging you to perform a service. Let's say they order 100 appraisals through you by the end of the year. They will want to deduct that $40,0000 (I am assuming $400 an appraisal for illustration purposes) as a business expense. The IRS will not allow them to do that without a matching 1099. They cannot issue you a 1099 without you sending them a W9.

Service people that refuse to send W9's to those that employ them usually do it for one reason. . .they are hiding fee income from the IRS