What's different here
- Exempt payee, not exempt payer. Payments to a 501(c)(3) are exempt from 1099 reporting; payments by one are not. Contractors, consultants, speakers, landlords and grantees paid $600 or more in 2025 ($2,000 in 2026) get a 1099-NEC or MISC from the nonprofit.
- Grants to individuals are the hardest classification. A grant to an individual for services (a fellowship with work required, a commissioned artist) is nonemployee compensation. A prize or award (a competition, an honor) is 1099-MISC box 3. A qualified scholarship to a degree candidate used for tuition is not reportable at all. A hardship or disaster grant to an individual under a properly designed program is generally not reportable. The program's design determines the form, so tax counsel should sign off on program rules before the first check.
- Honoraria and speaker fees are 1099-NEC to the speaker (or to the speaker's employer if paid to the institution). Travel reimbursed under an accountable plan is excluded; a flat travel stipend is included.
- Research subjects and study participants are 1099-MISC box 3 above the threshold, and gift cards count. Many organizations pay them through petty cash and never capture a TIN.
- Grants to other organizations are not 1099 reportable (the grantee is usually an exempt organization or the payment isn't for services), but the funder still needs the grantee's EIN, exempt status and, for federal pass-through funds, a SAM.gov check.
- Volunteers and board members reimbursed under an accountable plan get nothing; a board stipend is 1099-NEC (or W-2 if the director is also an employee).
- Donor-facing questions (does a donor get a 1099 for a raffle prize? yes, box 3, above the threshold) tend to land on the finance team without warning.
A nonprofit is an exempt payee. It is not an exempt payer.
The forms an exempt organization files
| Form | What it covers here | Threshold (2026 payments) | To the IRS | The trap in this sector |
|---|---|---|---|---|
| 1099-NEC | Contractors, consultants, speakers' honoraria, performers, grant writers, auditors and lawyers (corporate or not) | $2,000 ($600 for 2025 payments) | January 31 (next business day if a weekend); no automatic extension | Honoraria are fees for services; a thank-you check to a speaker is reportable at the same threshold as a consultant's invoice. |
| 1099-MISC box 3 | Prizes and awards, research grants to individuals that are not scholarships, payments to study participants, benevolence that is compensation | $2,000 | February 28 on paper, March 31 electronically; recipient copy January 31 | Qualified scholarships and fellowships are not reported on 1099-MISC at all; grants to individuals for anything else are. |
| 1099-MISC box 1 | Rent for space, equipment and event venues paid to non-corporate landlords | $2,000 | February 28 on paper, March 31 electronically; recipient copy January 31 | Churches and small charities renting from an individual landlord are the usual missing return. |
| W-2G | Raffle, drawing and bingo prizes | Game-specific; see the W-2G page | February 28 paper, March 31 electronic; winner copy January 31 | A raffle is a wager. A car won in a raffle is withheld on at 24 percent of its value less the ticket price, paid by the winner or grossed up by the charity (Pub 3079). |
| 1098-C | Donated vehicles, boats and aircraft claimed at more than $500 | $500 | Within 30 days of the sale or the contribution; to the IRS with the year's returns | The donor's TIN comes from the donor at the time of the gift or not at all. |
| Form 8282 | Donated property sold or disposed of within three years, where the donor claimed more than $5,000 | $5,000 | 125 days after the disposition | A Form 8282 without the donor's TIN is an incorrect return; CCA 200101031 (below) is the waiver path. |
| 1042-S | Foreign speakers, researchers, grantees and scholarship recipients | None | March 15 | A nonresident alien's scholarship for incidental expenses is 14 percent or 30 percent withholding, reported on 1042-S income code 16, not on a 1099 or a W-2. |
Backup withholding on an unmatched grantee or contractor is deposited on Form 945 under the organization's EIN, which most exempt organizations have never filed; the unfiled 945 page explains what the 945 matching program does with a 1099 showing box 4 withholding and no 945 behind it.
Where a nonprofit's notices come from
- Form 990 Part V. Line 1a asks for the number of 1099s filed (box 3 of Form 1096) and line 1b for the number of W-2Gs; Part IX shows the fees paid. An examiner who sees $3 million of professional fees and 12 information returns opens a compliance check (the Letter 4204 guide).
- Honoraria and small grants. Paid by program staff from a different ledger than AP, to individuals whose W-9 was never requested because the amount seemed small; each one over the threshold is a return, and a missing TIN is a full-rate penalty.
- Grantees. A grant to a fiscal sponsor, a chapter or an unincorporated group arrives at the IRS under whatever name and TIN the grant agreement carried; the line 1 rule applies to a community group as much as to an LLC.
- Donors. The 1098-C and Form 8282 are the only information returns where the payee is giving the organization money; the donor's TIN has to be asked for at the gift, and CCA 200101031 says the penalty waiver depends on proving the request and the refusal.
- Volunteers who become contractors. A volunteer reimbursed under an accountable plan is outside the system; the same person paid a stipend is a 1099-NEC or W-2 payee, and the file rarely marks the transition.
The checks that sit on top of the TIN
| Check | Source | When | What a failure means |
|---|---|---|---|
| Name/TIN match | IRS TIN Matching Program for contractors, grantees, honoraria recipients and landlords | Before the first payment or disbursement | A CP2100 line; a 972CG with no solicitation record behind it |
| Grantee exempt status | IRS Tax Exempt Organization Search (Pub 78 data and the auto-revocation list) | Before each grant; private foundations also for expenditure responsibility | A grant to a revoked organization is a taxable expenditure for a foundation and a reporting question for anyone |
| Federal exclusions | SAM.gov, for subrecipients of federal awards (2 CFR 180) | Before a subaward and at renewal | An unallowable cost under the award |
| Sanctions | OFAC SDN and consolidated lists; Treasury's voluntary guidelines for charities on foreign grants | Before any grant or payment, especially abroad | A blocked transfer and an OFAC report; see the screening guide |
| State charity registration | State attorney general or secretary of state charity registries | Before granting to or soliciting with another charity | A state compliance issue, independent of the IRS |
| Form 990 reconciliation | Part V lines 1a and 1b against Part IX and the W-2G file | Before the 990 is signed | The mismatch the examiner reads first |
A process sized for a small team
- Make the W-9 a condition of the check request form; no W-9, no payment, including for honoraria and study participants.
- Verify every name/TIN pair against IRS records at setup and log it; a small nonprofit's 1099 file is small enough to check completely.
- Write the grant-program rules with the 1099 classification stated in them, so program staff know which payments are reportable before they're made.
- Do the December sweep of payees without a TIN and log the solicitation; that is what makes the penalty waivable if a grantee never responds.
- Screen grantees and vendors against OFAC, and against SAM.gov when federal money is involved.
A worked example: the 990 that did not add up
A foundation with a staff of nine pays 900 grantees and 300 vendors in 2026 and files 40 Forms 1099-NEC. Its Form 990 shows $3.2 million of professional fees and other services in Part IX and 40 returns on Part V line 1a. The TE/GE compliance check letter arrives the next year.
The review finds 260 unfiled 1099-NECs (consultants, evaluators, speakers and lawyers paid by program staff) and 35 grants to individuals that were 1099-MISC box 3 items, 295 returns at $340, $100,300, with the same again under section 6722 and an intentional disregard question because the organization filed for some payees and not others.
The foundation has no solicitation record for the 295, so Reg. 301.6724-1 does not help; what helps is filing the 295 returns immediately (late is cheaper than never), showing that the 40 it filed were the AP ledger and the 295 came from a program ledger nobody had mapped (a failure of system, not a refusal: TAM 200501016), and adopting the W-9-before-first-disbursement rule CCA 200040034 permits. The penalty stays at the capped per-return tier and the first-time abate question is raised for the 6722 side. Pantano is the reminder that the response goes in on the first notice.
Annual maximum at the $340 rate: $4,191,500, or $1,397,000 for a filer with average gross receipts of $5 million or less. Section 6722 charges the same amounts again for the payee statements. Returns due in 2027, Rev. Proc. 2025-32. Full tables: the 972CG estimator and the figures page.
Questions nonprofits ask
We are tax-exempt. Do we really have to file 1099s?
Yes. Section 6041 applies to every person engaged in a trade or business, and the regulations treat an exempt organization's activities as a trade or business for this purpose. The exemption makes you an exempt payee on a W-9 you give others; it does nothing for the returns you owe on what you pay.
Is a speaker's honorarium reportable?
Yes, on 1099-NEC when the year's payments to that speaker reach $2,000 (2026). Reimbursed travel under an accountable plan is not income and is left off; a flat travel allowance is part of the fee.
Do we send a 1099 for a scholarship?
No. Qualified scholarships and fellowships to degree candidates are not reported on 1099-MISC, and taxable scholarship amounts are the student's to report. The exception is a nonresident alien recipient, whose scholarship is withheld on and reported on Form 1042-S; the foreign payee guide has the rates.
A donor gave us a car and will not give a Social Security number. Do we still file the 1098-C?
Yes, without it, and keep the record of the request and the refusal. CCA 200101031 says the penalty notice for the missing TIN is automatic and the waiver is won afterward by proving the solicitation; the same rule applies to Form 8282.
We raffled a $40,000 car. What do we owe the IRS?
A W-2G to the winner and withholding of 24 percent of the fair market value less the ticket price, collected from the winner before the keys change hands or grossed up and paid by the charity at the higher rate in Pub 3079; the W-2G calculator works it. Noncash prizes are the raffle problem that catches organizations that have handled cash raffles correctly for years.
Can we make the first grant payment conditional on a W-9?
Yes (CCA 200040034). It is the single control that keeps the missing-TIN withholding period from ever opening, and a grant agreement is the natural place to write it in.
What the IRS and the courts have said about exempt organizations
- Pantano Baptist Church v. Commissioner, T.C. Summary Opinion 2018-3 (docket record): a church that did not get its W-2s to SSA, ignored the CP215 penalty notices and ignored a levy notice with hearing rights could not contest about $12,300 of intentional disregard penalties at the later lien hearing; the first notice is the one that counts.
- Chief Counsel Advice 200101031: a charity's Form 8282 without the donor's TIN is an incorrect return and the penalty notice is automatic, but the charity can obtain a waiver by showing it solicited the TIN as the regulations require and the donor refused; the same path as any 1099 payer's 972CG response.
- Private Letter Ruling 199909032: a legal services foundation receiving IOLTA interest is an exempt recipient, so the bank generally need not report, but an exempt recipient is not exempt from backup withholding on a defective certificate; the W-9 exempt payee code protects a charity only if the form is complete.
- Chief Counsel Advice 200040034: nothing prevents a payer from requiring the payee's TIN before making a reportable payment; a grant agreement that conditions the first disbursement on a W-9 is permitted and closes the missing-TIN withholding window before it opens.
- Holden v. Commissioner, T.C. Memo. 2015-131 (docket record): an unfiled 1099 is a penalty problem, not a deduction problem; for an exempt organization the equivalent point is that the unfiled return is a 6721 matter, not a basis for questioning the expenditure's exempt purpose.
- Private Letter Ruling 200819013: a settlement fund with no reportable payments has no W-9 program to run, and where it does pay reportable amounts to plan participants it may obtain the TINs from the plans and transfer agents rather than solicit each payee; the model for a foundation distributing through intermediaries.
The reasonable cause and procedure topics of the finder hold these; the TE/GE compliance check page describes the exam an exempt organization actually gets, and the PMFOL page what the examiner sees before writing.