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.

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