IRS Form 1099 Rules for Law Firms

Law firm 1099 reporting is often misunderstood, especially when trust accounts, settlements, referral fees, and co-counsel payments are involved. This guide explains how current IRS rules apply specifically to the normal course of a law firm’s business.

You will learn:

• When to issue Form 1099-NEC vs Form 1099-MISC

• How entity type affects reporting, including attorney exceptions

• How to handle settlements, judgments, and legal fees

• Why trust accounting does not eliminate 1099 obligations

• When refunds of legal fees are reportable and when they are not

• How to avoid common over-reporting errors that create corrections and penalties

This resource is designed for:

• Solo and small law firm owners

• Managing partners

• Firm administrators and operations managers

• Bookkeepers and accountants serving law firms

It assumes no prior tax technical knowledge and is written in plain language, while remaining technically accurate.

• A decision-tree flowchart

• Law firm–specific situations covering:

  • Co-Counsel and Of-Counsel

  • Disbursements to clients

  • Payments from the IOLTA

• Filing deadlines

Incorrect 1099 reporting can result in:

• IRS penalties

• Duplicate reporting

• Client and vendor confusion

• Time-consuming corrections

This guide helps law firms issue 1099s only when required, and avoid issuing them when they are not.