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I used a lawyer to help me settle an auto insurance claim. The claim was paid to my lawyer by the insurance company and she gave me my share after she deducted her fee. The lawyer took her 20% cut of the insurance claim- the total claim amount was under $2000. Why did she make me fill out a W-9 form? She didn't pay me the money out of her own pocket- is she trying to make it appear as though she did?
As an audit trail to prove only a portion of the tendered funds were retained as her fee and that will probably be the end of it. And the W-9 is for tax purposes, at the end of the year the attorney will send you and the IRS a 1099 showing this income. Still, if it comes up as a random audit inquiry, the corresponding transfer can easily be verified in your tax returns for that year and everyone comes away clean.
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