Schedule C - No Income Reported To IRS

[KumarB]

I had a client come to do 3 years taxes. He works as trucker. For 2011 and 2013, he received a 1099-Misc. For 2012, he claimed he worked, however employer refuse to issue 1099. His only proof is money been deposited into account and no income is being reported to IRS. The problem is.. He will qualify for EIC because of his children. What should one do in this situation in following EIC due diligence guidelines?

[Burke]

Does he have paystubs? How did they pay him? You need to see something. And cash won't get it. How did they know how much to pay him? Did he submit time sheets, logs for which he kept copies?

[buzzardbreath]

Agree with Burke

...I usually do.

If there is a reliable record of an income stream, I would not hesitate to report accordingly, and treat the EIC the same as would be the case had there been a 1099.

This is not the preparer's problem. EIC due diligence can be met even though payer is not co-operating, if there is sufficient documentation. The EIC questionnaire asks specifically about self-employment records, but allows for any kind of reliable documentation.

[FEDUKE404]

Send him on

I wouldn't touch his return with a 40-foot pole, especially considering EITC may be involved.

These types of returns always come out of the woodwork (kinda like roaches when the lights go out) the last week of April filing season.

Send him to Block or J-H. Their patience is better, and their pockets are much deeper. If you somehow decide to do the tax returns, collect a VERY large payment up front, and also review your E & O policy carefully.

FE

[Burke]

And there is no way to prove that income deposited into a bank account was earned income without some kind of outside documentation. If the company paid by check, the bank can give the TP copies of those checks which were deposited.

[taxmandan]

Is the income he says he made consistent with 2011 & 2013 which are on 1099s? How do his expenses stack up against those years' expenses also? I would get details about the company that won't give the 1099 to him: name, address, type of business, is it a business that would hire a trucking service? And like others mentioned, if he can get copies of the checks deposited from that company in his bank account then I would have no problem preparing his return with EITC, in June.

[taxea]

I would have him get a copy of the company check or document of deposit from them to his account and then I would report them for not filing a 1099misc. Whether or not he gets the 1099m he is still responsible for reporting the income. The Sch C should not be done without all income reported.

[David1980]

I would accept the bank statement deposits and file with EIC.

What do people do for their self-employed people who have income reported on a 1099-MISC and other income as well? In the case of an independent contractor you might very well have a 1099-MISC showing the total. But for other self-employed people? A landscaper that works as a sole prop. working for several large companies and for individuals as well might get a 1099-MISC for some of the work but probably not other. Perhaps some of it is paid for by credit card and some of that other is on a 1099 as well, but I'd bet you have cash income that won't end up on a 1099 and might not even make it to the bank statement.

I suppose one position to take is if there is EIC refuse to do the return. In which case I don't know why the presence of the 1099-MISC would make or break that decision. Do you accept the parent with 3 kids with a few 1099-MISC for approx $15,000 and refuse the one that has $15,000 with only bank statement deposits? What if the one with 3 kids has an additional $40,000 of income not reported on 1099-MISC? Seems you couldn't completely 100% trust the information the one with the 1099-MISC has either.

[Burke]

I suppose one position to take is if there is EIC refuse to do the return. Do you accept the parent with 3 kids with a few 1099-MISC for approx $15,000 and refuse the one that has $15,000 with only bank statement deposits?

Yes. The problem is not whether it is income or not, I would do the return showing that. It's whether it qualifies for EIC. For that little benefit, I would want proof it is earned income.

[Gary]

No

Don't send him to Block.

I wouldn't touch his return with a 40-foot pole, especially considering EITC may be involved.

These types of returns always come out of the woodwork (kinda like roaches when the lights go out) the last week of April filing season.

Send him to Block or J-H. Their patience is better, and their pockets are much deeper. If you somehow decide to do the tax returns, collect a VERY large payment up front, and also review your E & O policy carefully.

FE