ABC Taxes, Tips & Tools

The due date for 1099 report­ing to the Fed­eral gov­ern­ment for the tax year 2009 just passed.  If you have just noticed that a 1099 you have received doesn’t really belong to you or that it con­tains incor­rect infor­ma­tion, I wish you lots of luck in get­ting the issuer to change it at this late date.  Even if you asked them to fix it imme­di­ately after receiv­ing the form many issuers are reluc­tant for var­i­ous rea­sons, will not acknowl­edge the com­mu­ni­ca­tion, and do not make the change to the statement.

So what do you do if you get one that is incor­rect? Some­times peo­ple do receive inter­est, income, estate dis­tri­b­u­tions and div­i­dend income state­ment for income that belongs to some­one else. Some­times the amounts are incor­rect.  Some­times the 1099 issued to the wrong tax­payer iden­ti­fi­ca­tion, e.g. your Social Secu­rity Num­ber instead of your busi­ness tax­payer iden­ti­fi­ca­tion num­ber.  It could even be fraud­u­lent use of your identity.

The first thing you can do is ask the per­son or entity report­ing the income to fix the 1099. In any case where the name, tax­payer iden­ti­fi­ca­tion, or address is wrong — you should give the issuer a w-9 & advise them to update their records imme­di­ately. You should keep records of this con­tact. Maybe you get lucky and they do reis­sue the 1099.  Hey, it does hap­pen… so you should ask.

If the issuer does not respond by cor­rect­ing the infor­ma­tion return… then you will have to make the adjust­ments on your tax return.

Wrong tax­payer ID: If you know the per­son who actu­ally received the income and you have their tax­payer infor­ma­tion: Name, cur­rent address and tax­payer iden­ti­fi­ca­tion, you can do a “nom­i­nee dis­tri­b­u­tion.”  You accept the income as reported and then deduct it telling the IRS to  whom the income prop­erly belongs.  Be sure to include a nom­i­nee dis­tri­b­u­tion state­ment, which includes the issuer’s name, address and tax­payer ID, the name of the per­son or entity who did receive the income, includ­ing  their address & tax­payer iden­ti­fi­ca­tion num­ber as well a dec­la­ra­tion that this income is not yours.  This solu­tion will also work for the sit­u­a­tion where the income is reported to your Social Secu­rity num­ber but belongs to your part­ner­ship or cor­po­ra­tion — you would do a 1040 Sched­ule C report­ing the income then expense the entire amount out as an other item refer­ring to the appro­pri­ate busi­ness tax form includ­ing the business’s name, address and tax ID.

To be tech­ni­cally cor­rect you should also report this nom­i­nee dis­tri­b­u­tion using the appro­pri­ate 1099 form and form 1096 & issue your own 1099 to the payee.

If you are listed as a payee and you do not know who should have received the 1099, then you should treat it using the “wrong amount” pro­ce­dure listed below.

Wrong amount:  Too lit­tle? What’s the prob­lem?  Just report the cor­rect higher amount accord­ing to your records.  The IRS is not going to ques­tion you report­ing more money than they were expect­ing.  Too much is another story.

If you have a 1099-MISC and you have extra income that was not reported on any 1099s, which is often the case as 1099-MISCs report pay­ments of more than $600 in a tax year and you prob­a­bly have a few sources that were less than that — in the­ory the eas­i­est method is to  just soak up the dif­fer­ence with non-1099 income.  But if you want to be tech­ni­cally cor­rect, or if you do not have enough money to soak up the excess, or if income is being fraud­u­lently attrib­uted to you, you will want to report the income as stated and sub­tract off the excess as an other expense sup­ported by a state­ment say­ing why that par­tic­u­lar 1099 was wrong; this state­ment should include the issuer’s infor­ma­tion, the cor­rect income …and expenses-if applic­a­ble. Real­ize an incor­rect 1099-MISC may hap­pen as a result of the issuer includ­ing things that you do not think of as income; for exam­ple if part of the money you received was “reim­burse­ments.”  If reim­burse­ment income is included on the 1099-MISC, then you are enti­tled to deduct the asso­ci­ated expenses — not the 1099 issuer — claim them.

If you sus­pect some­one has stolen your iden­tity, you need to file a police report, report it the credit bureaus and oth­er­wise deal with that issue aggres­sively. Han­dling iden­tity theft is beyond the scope of this discussion

There is a dif­fer­ent pro­ce­dure for incor­rect w-2 infor­ma­tion report­ing, whether it is excess or not issued at all.

• But the first step is the same — you must con­tact the employer and attempt to get them to resolve the issue.  Keep records of the con­tact includ­ing a reg­is­tered let­ter receipt (and the let­ter itself if it is returned).
• If the employer does not respond or does not cor­rect the form, then you will have to call the IRS and file a w-2 Form complaint.
• Then you will have to file a Form 4852, Sub­sti­tute for Form W-2, Wage and Tax State­ment, or Form 1099-R, Dis­tri­b­u­tions from Pen­sions, Annu­ities, Retire­ment or Profit-Sharing Plans, IRAs, Insur­ance Con­tracts, etc. with your tax return.

FYI:  There are many kinds of infor­ma­tion returns:

• W-2 (wages) & W-2G (gam­bling income) is one most peo­ple are famil­iar with
• 1099-INT reports inter­est income
• 1099-DIV reports div­i­dends income
• 1099-MISC reports rent income, non-employee com­pen­sa­tion and other mis­cel­la­neous forms of income
• 1099-OID reports income from a cer­tain kind of bond
• 1099-PATR reports farm­ing patron­age div­i­dend income
• 1099-G reports gov­ern­ment pay­ments such as state tax refunds and unem­ploy­ment income
• 1099-A reports secured prop­erty aban­don­ment or acquisition
• 1099-C reports can­cel­la­tion of debt income
• 1099-R reports retire­ment income from annu­ities etc.
• 1099-MSA reports dis­tri­b­u­tions from Med­ical Sav­ings Accounts
• 1099-LTC reports Long Term Care benefits
• 1099-B reports bro­ker and barter transactions
• 1099-S reports income from real estate sale
• 1042-s reports US income paid to a for­eign person
• 1098 reports home mort­gage inter­est etc.
• 1098-E reports stu­dent loan interest
• 1098-T reports tuition
• 5498-reports con­tri­bu­tions to retire­ment accounts

As always, small busi­ness ser­vices and tax­a­tion are our busi­ness, if you need help with this issue or any oth­ers, Please give Art & Busi­ness Con­sult­ing a call.  We would love to engage you as a client.

The usual dis­claimers: Although ABC has made every effort to insure the accu­racy of Taxes, Tips and Tools, mis­in­for­ma­tion, dis­in­for­ma­tion, changes, mis­takes, typos and hack­ers hap­pen, there­fore Art & Busi­ness Con­sult­ing LLC takes no respon­si­bil­ity for any action taken or results based on the infor­ma­tion sup­plied here in.  Inter­nal Rev­enue Ser­vice Cir­cu­lar 230 Dis­clo­sure:  As pro­vided for in Trea­sury reg­u­la­tions, advice (if any) relat­ing to fed­eral taxes that is con­tained in this com­mu­ni­ca­tion (includ­ing attach­ments) is not intended or writ­ten to be used, and can­not be used for the pur­pose of (1) avoid­ing penal­ties under the Inter­nal Rev­enue Code or (2) pro­mot­ing, mar­ket­ing or rec­om­mend­ing to another party any plan or arrange­ment address herein.  Art & Busi­ness Con­sult­ing LLC cur­rently does not have a cer­ti­fied pub­lic accoun­tant or an attor­ney on staff; this infor­ma­tion is purely for edu­ca­tional pur­poses and not to be con­strued as legal or finan­cial advice.  Art & Busi­ness Con­sult­ing LLC and its employ­ees, mem­bers and asso­ciates are not engage to prac­tice law; you always should dis­cuss legal mat­ters with your attor­ney before talk­ing to any­one else.

Tags: 1099, 1099-DIV, 1099-INT, 1099-MISC, fraudulent use of taxpayer identity, how to, incorrect income, incorrect information, incorrect taxpayer information, information returns, W-2, W2

This entry was posted on Friday, March 5th, 2010 at 1:49 pm and is filed under Business Taxes, Individual Taxes. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.