If you hold title to property or an account for someone else under IRS rules, nominee arrangements come with two core duties: the beneficial owner reports and pays tax on the income, and you file information returns that redirect any income reported under your name to the person it actually belongs to. Skip the paperwork and the penalties start at $60 per form and climb to $680 for intentional disregard.
A nominee arrangement exists when one person holds legal title to an asset while another person keeps all the economic benefits. The name on the deed, brokerage statement, or bank account is the nominee. The person who put up the money, uses the property, and receives the real benefit is the beneficial owner. The IRS treats the beneficial owner as the taxpayer, no matter whose name appears on the paperwork.
Adjust Your Own Return First
When a Form 1099 arrives in your name reporting income that belongs to someone else, you cannot simply ignore it. The IRS matches those forms against your return. You have to report the full amount, then subtract the portion that isn’t yours.
For interest income, list the total from all your Forms 1099-INT on line 1 of Schedule B. Below the last entry, write a subtotal. On the next line, enter “Nominee Distribution” and the amount belonging to the beneficial owner. Subtract that figure and carry the result to line 2. Ordinary dividends work the same way on lines 5 and 6.1Internal Revenue Service. Instructions for Schedule B (Form 1040)
Skipping this step leaves the IRS looking at more income on your return than you actually earned. The subtraction alone isn’t enough, though. You also have to file a new information return that tells the IRS where the money really went.
Issue the Right 1099 to the Beneficial Owner
The form depends on the type of income:
- Interest income: Form 1099-INT
- Dividend income: Form 1099-DIV
- Proceeds from the sale of securities: Form 1099-B
On each form, you list yourself as the payer and the beneficial owner as the recipient.2Internal Revenue Service. General Instructions for Certain Information Returns That structure tells the IRS the money flowed through your hands but the tax belongs to someone else.
Before you can file, gather the beneficial owner’s Social Security Number or Taxpayer Identification Number and a clean accounting of the exact amounts to reallocate. The TIN is what the IRS uses to match the income to the right person’s return.
The Spousal Exception
Spouses don’t file nominee returns for each other. If a joint account reports all its interest under one spouse’s SSN and the couple files jointly, there is nothing to redirect.2Internal Revenue Service. General Instructions for Certain Information Returns
Deadlines for Nominee Filings
The paperwork has three steps and three separate deadlines.
Furnish a copy of the Form 1099 to the beneficial owner by January 31 for most form types. For Form 1099-S, the deadline for statements due in 2026 is February 17, 2026.
File Copy A with the IRS. On paper, returns due in 2026 must be filed by March 2, 2026, with a Form 1096 transmittal attached. Electronic filers get until March 31, 2026.2Internal Revenue Service. General Instructions for Certain Information Returns Anyone required to file ten or more information returns in a year must file electronically.
Penalties for Late or Incorrect Returns
For information returns due in 2026, penalties scale with how quickly you fix the problem:
- Corrected within 30 days of the due date: $60 per form
- Corrected after 30 days but on or before August 1: $130 per form
- Corrected after August 1 or never filed: $340 per form
- Intentional disregard: $680 per form with no calendar-year cap
Small filers, defined as those with average annual gross receipts of $5 million or less, get lower calendar-year caps on total penalties, but the per-form amounts don’t change.3Internal Revenue Service. Information Return Penalties
Reasonable Cause Relief
The IRS may waive penalties if you can show reasonable cause. You generally need to demonstrate two things: that you acted responsibly both before and after the failure, and that significant mitigating circumstances or events beyond your control caused the problem. First-time filing of the form, a strong compliance history, or economic hardship that prevented electronic filing can all help.4Internal Revenue Service. Penalty Relief for Reasonable Cause Correct the failure as quickly as you discover it. Delay undercuts the argument.
The Backup Withholding Trap
Because you appear as the payer on the new Form 1099, you take on the payer’s obligation to perform backup withholding at 24% if the beneficial owner fails to provide a valid TIN. Fail to collect and remit that withholding and you can be personally liable for the amount that should have been withheld.5Internal Revenue Service. Publication 1099 (2026), General Instructions for Certain Information Returns This catches people out. Someone holding an account for a relative or friend rarely realizes that the other person’s foot-dragging on a Social Security Number can turn into their own tax bill.
Partnership Interests Held as a Nominee
Holding a partnership interest for someone else adds a step. Federal regulations require the nominee to send the partnership a written statement disclosing the beneficial owner’s name, address, and TIN, along with a description of the interest held at the start of the tax year and any acquisitions or transfers during the year with dates and amounts.6eCFR. 26 CFR 1.6031(c)-1T – Nominee Reporting of Partnership Information (Temporary) The disclosure is due by the last day of the first month after the partnership’s tax year closes, so January 31 for a calendar-year partnership.
That notice lets the partnership issue Schedule K-1 directly to the beneficial owner. If you don’t notify the partnership and the K-1 comes to you instead, you have 30 days from receipt to send the beneficial owner a written statement covering their distributive share of income, deductions, and credits.6eCFR. 26 CFR 1.6031(c)-1T – Nominee Reporting of Partnership Information (Temporary) Keep copies of every statement you send, whether to the partnership or the beneficial owner, for as long as they may be relevant to tax administration.7Internal Revenue Service. Instructions for Form 1065
Real Estate Proceeds
Nominee reporting for real estate sales uses Form 1099-S. You file a new Form 1099-S showing yourself as the payer and the beneficial owner as the recipient, and you give the beneficial owner a copy or acceptable substitute statement.8Internal Revenue Service. Instructions for Form 1099-S
The statement to the beneficial owner for 2026 is due February 17, 2026. Paper filing with the IRS is due March 2, 2026, and electronic filing March 31, 2026.2Internal Revenue Service. General Instructions for Certain Information Returns Real estate deals involve larger dollar amounts, so an intentional disregard penalty of the greater of $680 or 10% of the reportable amount can add up in a hurry.
Document the Arrangement
The IRS does not require a specific form or template for establishing a nominee relationship, but written documentation matters if the arrangement is ever questioned. A nominee agreement should identify the beneficial owner, describe the specific property or accounts, state that the nominee holds title solely as an agent, and confirm that the beneficial owner keeps all economic rights and decision-making authority.
Without a written agreement, you are asking the IRS to take your word for it when you claim income belongs to someone else. Revenue officers evaluating a nominee situation look for objective evidence of who funded the purchase, who controls the property, and who pays the expenses.9Internal Revenue Service. Federal Tax Liens A signed agreement created when the arrangement begins is far more persuasive than one drafted after the IRS starts asking questions. Keep it alongside records of every transaction, payment, and income allocation tied to the property.
A Note on Nominee Liens
The reporting rules above cover legitimate nominee arrangements, where the beneficial owner is meeting their tax obligations and just needs the income redirected on paper. The IRS uses the word “nominee” a second way, in the collection context, when a delinquent taxpayer has parked assets in someone else’s name to duck a tax debt. In that situation the IRS can file a special nominee lien reaching the property, but that filing requires Area Counsel approval and identifies the specific asset and the nominee by name.10Internal Revenue Service. Internal Revenue Manual – Notice of Lien Preparation and Filing If you set up a nominee arrangement properly, report income to the true owner, and the beneficial owner pays their taxes, none of the collection machinery comes into play.