How do I prepare and file the required 1099-S form for the partition sale to allow disbursement of proceeds? – North Carolina

Short Answer

In a North Carolina partition sale handled by a court-appointed commissioner, the person responsible for closing (usually the commissioner’s closing attorney) must file IRS Form 1099-S reporting each owner’s gross proceeds. Collect a completed Form W-9 from each transferor, allocate gross proceeds (including any lien payoff made on that owner’s behalf), furnish the 1099-S statement to each seller, and file with the IRS by the required deadlines. Proceeds are typically released only after the Clerk confirms the sale and lien satisfactions are recorded.

Understanding the Problem

You need to know who files the 1099-S for a court-ordered partition sale in North Carolina, what information it must show, and when it can be filed so the commissioner can release funds. Here, one co-owner’s undivided interest is encumbered by a deed of trust, and the closing attorney requires both the trustee’s recorded satisfaction and a filed 1099-S before releasing sale proceeds.

Apply the Law

North Carolina partition sales by a commissioner follow the judicial sales process. The commissioner reports the sale to the Clerk of Superior Court, an upset-bid period runs, and the Clerk confirms the sale. After confirmation and deed delivery, the commissioner disburses proceeds pursuant to court direction, paying valid liens and costs first. For federal tax reporting, the “real estate reporting person” (typically the closing attorney or commissioner) must file Form 1099-S showing each transferor’s gross proceeds. Gross proceeds include amounts paid to lienholders from that transferor’s share; they are not reduced for costs or payoffs.

Key Requirements

• Identify the reporting person: The settlement agent/closing attorney or commissioner acts as the 1099-S filer for the sale.
• Collect TINs: Obtain a completed Form W-9 from each transferor (each co-owner whose interest is conveyed).
• Calculate gross proceeds: Report each seller’s gross amount realized, including any lien payoff made on that seller’s behalf.
• Meet IRS deadlines: Furnish the seller statement by January 31 following the sale year and file with the IRS by the applicable filing deadline (paper or e-file).
• Wait for court milestones: Do not disburse net shares until the Clerk confirms the sale and recorded lien satisfactions (e.g., trustee’s satisfaction of deed of trust) are in place.

What the Statutes Say

• G.S. 1-339.24 (Report of sale) – The commissioner reports the sale to the Clerk, which starts the upset-bid period.
• G.S. 1-339.28 (Confirmation of sale) – After the upset-bid period, the Clerk enters an order confirming the sale.
• G.S. 45-36.10 (Satisfaction of security instruments) – Describes how deeds of trust are satisfied and released of record.
• Chapter 46A (Partition) – Governs partition proceedings, including sales by a court-appointed commissioner.

Analysis

Apply the Rule to the Facts: Because this is a court-ordered partition sale, the commissioner must report the sale, await the upset-bid period, then obtain confirmation before disbursing. The closing attorney (as reporting person) should collect a W-9 from each co-owner and prepare a 1099-S for each transferor. The spouse’s deed of trust must be paid from that spouse’s share and a trustee’s satisfaction recorded; those payoff amounts still count in the spouse’s gross proceeds on the 1099-S. The spouse’s inability to attend in person does not prevent 1099-S filing or disbursement once the court’s and recording conditions are met.

Process & Timing

1. Who files: The commissioner’s closing attorney (as the real estate reporting person). Where: Furnish 1099-S Copy B to each seller and file with the IRS (e-file or paper). What: Collect seller W-9s; prepare IRS Form 1099-S (and Form 1096 if paper filing). When: Provide seller statements by January 31; file with the IRS by the IRS deadline for the sale year (paper typically by late February; e-file by late March).
2. Court steps: Commissioner files the Report of Sale with the Clerk of Superior Court; an upset-bid period of at least 10 days runs; after no further upset bids, seek an Order Confirming Sale; deliver the commissioner’s deed.
3. Disbursement: Pay closing costs and any court-approved fees; satisfy and record the trustee’s satisfaction of the spouse’s deed of trust; then release each co-owner’s net proceeds as directed by the court. Maintain escrow if the court orders a hold due to the pending contempt motion.

Exceptions & Pitfalls

• Reporting the wrong amount: Gross proceeds include lien payoffs made for a seller’s benefit; do not report net after payoff.
• Missing TINs: If a seller will not provide a W-9, escalate promptly; filing may be delayed and funds may need to be held until information is received.
• Disbursing too soon: Releasing funds before the Clerk’s confirmation order or before recording the trustee’s satisfaction can create title and compliance issues.
• Court constraints: A contempt motion or other orders can require proceeds to be escrowed until further order, even if closing is otherwise complete.
• Non-U.S. sellers: Separate federal withholding rules may apply; address these early with the closing attorney to avoid delays.

Talk to a Partition Action Attorney

If you’re dealing with a court-ordered partition sale and need to get the 1099-S filed so proceeds can be released, our firm has experienced attorneys who can help you understand your options and timelines. Call us today at [919-341-7055].

Disclaimer: This article provides general information about North Carolina law based on the single question stated above. It is not legal advice for your specific situation and does not create an attorney-client relationship. Laws, procedures, and local practice can change and may vary by county. If you have a deadline, act promptly and speak with a licensed North Carolina attorney.