Interest & Dividend Income with Joint Owners

[taxmom34]

i have a client who has joint account with her mother also,and client's SS# is on 1099INT. i do client's return without the 1099 and write down what her refund is. then i put in the info on 1099 and give her the amount of refund. then i figure what mom should pay her for reporting the 1099 on her tax return. much simpler and easier way to handle it.

[erchess]

This is what I would do

I would prepare the nominee 1099 even though it is late. I would file it and I would prepare my client for a penalty and tell her that when the letter comes she needs to bring it to me so that I can seek to have it abated..

I would reply to the current IRS notice with the following:

A cover letter explaining everything
A copy of the form from the broker or bank with both names on it
A copy of the newly and lately filed nominee 1099
A copy of the daughter's Sch B (or if that was not filed a letter from her and a copy of her 1040 pg 1)

I would prepare the daughter for an eventual notice claiming that she did not tax herself on the money in question and assure her that if she brings it to you you will straighten things out.

You didn't say how long you have been doing the mother's return. If you have been preparing her returns without reporting the interest and without doing the nominee 1099s then you or your E&O policy need to pick up the tab for any penalties you cannot get abated and fix this mess without charging. Obviously if you are cleaning up a mess you did not make then you pay no penalties for them and charge your normal fees for the cleanup.

There is one other approach I sometimes try when, as in this case I am satisfied that the client owes either no additional tax or a specific amount of additional tax that is less than what the notice is asking for and yet the notice itself does not tell me what evidence I need to prove my facts. I will call up the number on the letter and explain the facts. Often the agent agrees that if my facts are proven my conclusion is correct and they tell me exactly what to send to whose attention to send it. What this phone call can do for me is two things. Number one the client feels more at ease and two sometimes the agent asks for something I would not have thought to send or tells me something I would have sent is not needed and either way time is saved.

Now maybe on Wednesday others will weigh in.

[GTS1101]

I have a client who is on a joint account with her daughter that earns interest and dividends. They have agreed that every other year each one will report the interest on their own return. So my client will report it in 2007 and the daughter will report the income in 2008. The form 1099 for 2007 came in both names but only my client's social is on the form 1099. The IRS mailed my client a letter stating that she did not report the income and pay tax on it. The 1099 income was reported on the daughters return for 2007. I am assuming it is to late to do a nominee 1099 so do you suggest I write a letter to the IRS explaining the situation?

Thanks!
GTS1101