Refused to give SS #

[oceanlovin'ea]

My client has a hair salon and the stylists and barbers receive 1099's from him. One man who worked part of last year refused to give him his social security number.

Of course, we all know how to avoid that.....make them produce social security card before they are allowed to work. I gave my client a W-9 and told him not to let anyone work in his shop without filling this out for him.

But we are past that now. I am doing his 1099's. Do I make one out with the man's name and no social security number on it? Can I submit a 1099 without a social security number?

Thanks

Linda

[oceanlovin'ea]

Anyone know what I should do?

Linda

[fliszt]

That happened to me

a couple years ago. I sent a registered letter stating the IRS requires a s/s number and if not supplied I would have no choice but to write to IRS and notify them Client xxx; addressxxx city,state would not supply her s/s#. I finally got it. But if I had not received it, I would have enclosed a letter with the 1099MISC.
And yes, the s/s should have been entered prior to work, but it wasn't.

[Nashville]

Send it in

Can I submit a 1099 without a social security number?

This happens more than I care to deal with. Issued a few this year with no numbers. The usual excuses - the guy won't call me back, the guy has left town, the guy....etc. etc.

What will ultimately happen is that IRS will write your client a letter, asking for updated information. If the information cannot be supplied, then the recipient will be put on mandatory 28% backup withholding until things are straightened out. If they are still in town, THAT will put the fear of God in them. The payer can no longer pay the guy without deducting 28% from the pay.

The payer can also be penalized, but I haven't heard of that happening to anyone.

I also discuss other alternatives with the client, such as considering the services as being personal and not business. Under that case, no 1099 is required, but then the amount paid to such people cannot be deducted either. In most cases, this is not a sanctioned approach, but if it can be argued that the services were personal, I offer it as a solution.
The effect is that the payer is "off the hook" for issuing a 1099, but the payer essentially ends up paying the recipients taxes on that amount of money instead of recipient. Very, very unpopular.

[ChEAr$]

What to do

Anyone know what I should do?

Linda

There's not much you can do about 2008 at this point. Advise client to issue 1099's to those for whom he/she has ID data.

Then... for 2009, counsel client that these people are common law employees and should
furnish W4 forms and taxes should be accounted for properly. Remind client that if state unemployment people ever swept through, the back taxes on employees would be horrendous. Plus they would notify IRS of what happened, too.

There is an IRS MSSP on beauty salons/barber shops you should get and read.

the only time a 1099 is applicable in this type of business is IF the barbers are leasing their chairs/booths and pay the owner a rental, usually a percentage. Then they are the ones who should be issuing 1099's to the owner for rent.

[oceanlovin'ea]

Does rent the chairs

He does rent the chairs. He gets a percentage of what they take in.

He changed his procedure and issues them a 1099 because some of the workers needed confirmation from him of how much they made. So last year he started issuing 1099's to them.

This guy that won't give the social security number isn't working for him any more. I asked if the guy was an illegal. But that is not the case. He just doesn't want the income reported. I'm sure the IRS has their ways to find this guy.

Thanks

Linda

[Nashville]

They Won't Do It

Linda, they won't track this guy down. They'll come down on your client, and maybe even you, but they won't spend the kind of effort required to collect from the recipient.

If it requires getting out of their office and finding transients, doing some REAL auditing and tracking instead of letting their computer spit out notices, then it won't happen. If they did this, much of the problem would evaporate.

[ChEAr$]

In this case,

He does rent the chairs. He gets a percentage of what they take in.

He changed his procedure and issues them a 1099 because some of the workers needed confirmation from him of how much they made. So last year he started issuing 1099's to them.

This guy that won't give the social security number isn't working for him any more. I asked if the guy was an illegal. But that is not the case. He just doesn't want the income reported. I'm sure the IRS has their ways to find this guy.

Thanks

Linda

See my reply above. he does NOT issue 1099's to the workers. It's their own
responsibility to keep track of their own income.

Because.... if he DOES issue 1099's, he's treating them as subcontractors and not
as he should, employees.

Booth rental is a whole different ball game.

[Bees Knees]

I just got a new client that has balance due amounts for 1997, 1999, and 2000. He paid subs on a 1099 and the Social Security numbers turned out to be bogus.

The IRS disallowed the deductions and sent him a bill. He says he tried to straighten it out in 2001 when he received notice of them disallowing the deduction. He claims they wouldn't budge. Of course he had no representation, so IRS could have been playing rough.

The point is, yes, they could do something to the payer...like disallow the deduction. That doesn't mean you can't fight it, but it might be something you want to tell your client as an added incentive to get a W-9 filled out prior to paying them anything.

[Burke]

What will ultimately happen is that IRS will write your client a letter, asking for updated information. If the information cannot be supplied, then the recipient will be put on mandatory 28% backup withholding until things are straightened out. If they are still in town, THAT will put the fear of God in them. The payer can no longer pay the guy without deducting 28% from the pay.

This is true, but the employer/payor should not wait for the letter which takes 18 mos or so. If payee is still working, 28% backup withholding is mandatory immediately if he refuses to give you an SSN. (Page 11 Gen Instructions for Forms 1099.) That usually cures the problem.

[S T]

Booth Rental

If I am understanding your post correctly,

If the t/p has hair stylists that are on Booth Rental (I hope t/p has a booth rental contract with each one) the hair stylist that rents the booth, should be issuing a 1099 for rents to your t/p.

If your t/p is receiving an override or percentage of the sales, then the hair stylist is paying that to your t/p, and the hair stylist (independent contractor) will be issuing the 1099 form to your t/p.

I don't think your t/p should be issuing any 1099 forms to any of the hair stylists at the location, only other 1099 forms either to t/p's landlord, you as the accountant, or other vendors that meet the 1099 criteria.

Sandy

[oceanlovin'ea]

I wondered about that. I have other hair stylists that work in shops and pay booth rent but they don't get 1099's from the shop owner. They keep track of their income.

They are definitely NOT employees. He is not paying wages to them. They give him 30% each week.

I think this idea stemed from one of the stylists needing some documentation from him of her income for some government programs because she has her grandchildren living with her.

I will have to talk to him again and clarify the situation with him. If she needed a statement that she paid him a certain amount of money which is 30% of her gross, he could write that out for her.

This man has in 2009 formed an LLC which will be taxed as a S corp. But the stylist will still rent the booth and pay him 30%.

This is an interesting thread. Thanks for the discussion.

Linda

[JohnH]

I agree with Sandy about providing some sort of statement rather than a 1099. I advise clients never to prepare 1099's when they are not required, even if the vendor asks for one. Aside from the trouble & cost, there's the hassle of mismatch letters from IRS. Also, if IRS develops an interest in the vendor for some reason unrelated to the realtionship with the issuer (fraud, evasion, etc) there's a link back to the issuer which might prompt inquiries of some sort.

If a vendor needs his transaction info, it's easy enough to just give them a list of payments. Just speculating here, I even wonder if the issuer could possibly get into hot water with a lender or government agency which claimed they made a decision based on an official-looking document (1099) provided by the issuer when it wasn't required. Stranger things have happened, and these are strange times in the financial and tax worlds.

[taxea]

persons who rent a booth or chair are self-employed. They are responsible for keeping track of their income, not the person who is renting the area to them. taxea