Carol McAtee & Associates, CPAS
What to Do if Your Form 1099 is Wrong
As reported by Forbes at msn.com, it’s Form 1099 time, so these little tax reports will begin to arrive in our mailboxes.
All the data in these forms is also going into an IRS computer to be matched against our tax returns.
But, what if you receive a Form 1099 that you know to be wrong? Say you’ve been paid a consulting fee of $30,000, but the 1099 you receive is for $300,000. What should you do?
Promptly contact the issuer, show them you really were paid $30,000, and ask them to reissue the 1099 to you for the correct amount. Ideally, do this before the issuer sends the 1099 to the IRS. Forms 1099 should be sent to taxpayers by January 31st and to the IRS by February 28th. So, if you call and write the issuer of the 1099 as soon as you receive it, the issuer may be able to simply destroy the incorrect one and issue a new one.
Ideally, get a letter from the company saying that it erroneously issued a Form 1099 for $300,000, destroyed it, and then promptly issued one for $30,000.
It is important to keep this documentation. Because you may find that the company did transmit the incorrect Form 1099 to the IRS after all. This way you’ll be able to explain it.
If the issuer of the 1099 has already sent the erroneous form to the IRS, ask for a “corrected” Form 1099. The “corrected” box on the form tips off the IRS not to simply add up the figures on the two Forms 1099.
What happens if the issuer won’t cooperate? There’s no good answer.
You’ll want to address this on your tax return. For example, you could show the $300,000 payment on your return (on line 21, 0r on a Schedule C), and then explain the $270,000 overstatement. You might do this in a statement or a footnote, as by showing $30,000 on line 21, but adding “see statement” to explain it.
Does this make your audit risk higher? It may, and that’s an argument for doing all you can to make sure the Form 1099 is correct in the first place. But, you probably don’t have much choice about this. After all, you practically guarantee yourself an audit if you merely report the $30,000 figure and don’t explain it. In that event, the IRS will likely send you a notice asking for tax on the $270,000.
Whatever you do, pay attention to Form 1099. The IRS sure does.
If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.
