Acting as Agent for Client - Do I Need to Issue 1099 for Sale of Client's Horses?

This is a classic principal-agent relationship question. Based on what you've described, you're right to question whether the revenue/expense approach is appropriate. Since you're acting as an agent and not taking ownership of the horses, the asset/liability approach is the correct accounting method. When you receive funds from the auction house, you should record it as an asset (cash) and a liability (due to client). Then when you pay the client, you reduce both the asset and the liability. Your actual revenue is only the 10% commission you keep, which should be recognized when earned. Regarding the 1099 question: Since you're not actually paying the client for services they provided to you or purchasing the horse from them, but rather passing through funds that were always theirs (minus your commission), you typically would not need to issue a 1099. The money fundamentally belongs to the horse owner, and you're acting as a custodian of those funds.

I was in a similar situation with my art consignment business, and I found using https://taxr.ai really helpful for sorting this out. It analyzed my contracts and business structure and confirmed that I was acting as an agent rather than a reseller. The key distinction the system helped me understand was that since I never took ownership of the items being sold (in my case artwork, in yours horses), the proper accounting was indeed the asset/liability method. The money from sales was never truly "mine" - I was just temporarily holding it before passing it along, minus my commission. For IRS purposes, this means I only reported my commission as income, not the full sale amount. And I didn't need to issue 1099s to my clients since I wasn't paying them for services or buying their property - I was returning their own money to them.

I tried taxr.ai after seeing it mentioned here, and I have to say I'm impressed. I run a boat brokerage business which has a similar agency structure to your horse consignment scenario. The platform analyzed my broker agreement and confirmed I'm using the correct approach - treating the sale proceeds as a liability until I pay the boat owner. It also provided documentation explaining why I don't need to issue 1099s to boat owners, since I'm returning their own funds rather than paying them for services. What really helped was getting a clear explanation of how to properly document these relationships in my books to avoid any confusion during a potential audit. They even provided sample language to include in my contracts to make the agency relationship crystal clear to all parties (and the IRS if needed).

I work for a CPA firm that handles several consignment and auction businesses, and I've seen clients struggle with exactly this issue. After many frustrating calls with the IRS about these situations, I discovered Claimyr (https://claimyr.com) which got me through to an actual IRS agent who could address this specific question. Instead of waiting on hold for hours, they got me connected with an IRS representative in about 20 minutes. The agent confirmed that in a true agency relationship, the principal-agent accounting (asset/liability approach) is correct, and 1099s aren't required for returning the principal's own money less your commission. They have a demo video that shows how it works: https://youtu.be/_kiP6q8DX5c Having a direct conversation with an IRS agent was incredibly valuable because we could discuss the specific details of the consignment business model and get definitive answers. For specialized tax situations like this, sometimes you really need to speak directly with the IRS.

I was extremely skeptical about Claimyr, but I tried it after spending 4 days trying to get through to the IRS about my S-corp filing issue. I couldn't believe it, but I got a call back with an IRS agent on the line in about 25 minutes. I asked specifically about consignment arrangements (I sell vintage furniture on consignment) and was told definitively that when acting as an agent, the 1099 reporting requirement doesn't apply to the funds returned to the owner of the goods. The agent explained that since I never take ownership of the furniture, I'm not "paying" the consignor - I'm returning their own money minus my commission fee. The agent also recommended documenting the agency relationship clearly in contracts and maintaining separate accounting for consigned items. Having this conversation probably saved me hours of research and uncertainty.

My two cents as someone who's worked with several equine businesses - the industry standard is definitely the asset/liability approach you described first. I record auction proceeds as "Client Funds Held" (liability) and then reduce that liability when I pay the client. One important thing to consider: make sure your consignment agreement clearly states you're acting as an agent, not taking ownership of the horses. This documentation is crucial if the IRS ever questions your treatment of these transactions. Also, I highly recommend having a separate bank account for client funds. Commingling these pass-through amounts with your operating funds can create both accounting headaches and potential legal issues if there's ever a dispute.

I think everyone's overcomplicating this. I've been in the horse auction business for 20+ years. You don't need to issue 1099s to the horse owners because you're not paying them for services - you're giving them their own money from the sale of their property. The IRS is primarily concerned with making sure income doesn't go unreported. In this case, the auction house will report the sale, you'll report your commission as income, and the horse owner will report their capital gain/loss from the sale (if applicable). There's no missing income for the IRS to worry about. Keep it simple - use the asset/liability approach, keep good records, and make sure your contracts clearly state you're acting as an agent. That's what I've done for two decades with no issues.

I appreciate everyone's insights here! As someone new to this community but dealing with a similar situation in my antique consignment business, this thread has been incredibly helpful. The consensus seems clear that the asset/liability approach is the way to go, and that 1099s aren't required when you're acting as a true agent returning the owner's own funds. What I'm taking away from this discussion: 1. Use asset/liability accounting (not revenue/expense) 2. Clearly document the agency relationship in contracts 3. Consider a separate bank account for client funds 4. Only report your commission as income 5. No 1099 requirement for returning the principal's money @Hunter Brighton - your situation sounds very similar to mine, just with horses instead of antiques. The key seems to be maintaining that clear agency relationship and proper documentation. Thanks to everyone who shared their experience - it's reassuring to see that multiple industries handle these consignment arrangements the same way successfully. One follow-up question: does anyone recommend getting this approach blessed by a CPA before implementing, or is the consensus here strong enough to move forward confidently?