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1099-MISC not reported for 10 years!

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    #1

    1099-MISC not reported for 10 years!

    Not a client, but shall be shortly.
    Wife has been rec'g a 1099-Misc for doing house cleaning for Postal Service.
    Couple has completed their own taxes always.
    They simply added her Non-employee compensation(Box 7) in with husband's W-2 wages(for 10 years while she has worked).
    Now she finds that she should have set herself up in business and paid her own SS.
    Questions?
    1-Shall we leave the past alone?
    2-Shall we begin her in a business this year?
    3-If corrected, how far back (three or ten years) shall I amend?

    Your professionalism on this site more than meets my expectations!
    Thank you for being here for many of us!
    Keep up the good work...forever.
    Thanking you in advance for your knowledge and my lack of time to seek my own answers.
    Tags: None
    #2
    Amend

    I would advise that they should amend all ten years. Of course, she owes SE tax, and there's no statute of limitations if you owe.

    I can't believe IRS has not questioned them. How much was she paid?
    If you loan someone $20 and never see them again, it was probably worth it.

    Comment

      #3
      Agree

      As preparer we have to get them to go back all ten years or send them elsewhere with instructions to say this has been going on only so many years.

      Am tempted to wonder if perhaps an OIC is in order here depending on how much SE Tax, P, and I we are looking at in relation to current income.

      Comment

        #4
        Make sure

        that 1099MISC has HER correct ss# (and that it is an actual 1099misc) and then if it does, your obligation is let client know that all 10 years should be amended and that you would be willing to amend them for x$ per year (of course if client does not want you to amend them, you have fulfilled your responsibility) amd should proceed to prepare a correct 2009 return.

        Comment

          #5
          Are we sure they are required to amend all 10 years? If they filed a return in each of the years in question, then the SOL has expired on returns filed more than 3 years ago, even if they computed the tax incorrectly. I think they only need to amend 2008, 2007, and possibly 2006. (I can explain the "possibly" if I need to).

          IRS might be able to compel them to go back 6 years under certain circumstances, but I'm not sure that rule would even apply in this situation. (There isn't a 25% omission of income on the returns).

          On the other hand, it might be to her benefit to amend if she has no Social Security quarters coverage for the closed years. What a tangled web...
          Last edited by JohnH; 02-18-2010, 03:53 PM.
          "The only function of economic forecasting is to make astrology look respectful" - John Kenneth Galbraith

          Comment

            #6
            The statute of limitations is only for claiming the refund. There is no statute of limitation for filing back returns or paying back taxes owed.

            Failure to include the 1099-Misc information could be considered purposely underreporting one's income, so the IRS could charge tax fraud and not only go back the 10 unreported years, but keep going back as far as they want to.

            This may also require late filing of state returns.

            Comment

              #7
              Incone was reported

              As the income was reported on lin e7 there is just a failure to pay SS tax. Under this circumstance I think the SOL has run out for all years befoere 2006. Is it possible the 1099 has the income under other not NEC?

              Comment

                #8
                They would owe -0- tax. Her income was reported on husband's in error. Income tax the same. SS tax you are just moving it from his SE to her SE. Disability is the main reason I now ask everyone WHO DOES THE WORK?

                Comment

                  #9
                  I did not understand it that way

                  I did not understand that Sch SE had been filed (and the tax paid) for anyone. So, was it filed with incorrect SSN and name?

                  If so, I think you still have an obligation to correct the record(s).
                  If you loan someone $20 and never see them again, it was probably worth it.

                  Comment

                    #10
                    Originally posted by Piglee View Post
                    They would owe -0- tax. Her income was reported on husband's in error. Income tax the same. SS tax you are just moving it from his SE to her SE. Disability is the main reason I now ask everyone WHO DOES THE WORK?
                    The original post says nothing about SE tax having been paid. If it wasn't then it was not transferred from one person to the other. All income tax would have been paid, as you said, but no SE tax on her part of the income.

                    And you make a very good point about the disability.

                    My opinion on the filing is that your responsibility is to advise them of their duty to correct the previous years, if indeed SE tax was not paid. Then you would correctly report the current year. If I understand correctly, advising the client of their duty for previous years fulfills your responsibility.

                    LT
                    Only in government or politics is a "cut in spending" really an increase. It's just not as much of an increase as they wanted it to be, therefore a "cut".

                    Comment

                      #11
                      This gets more confusing by the minute. My understanding of the original post was that she gets a 1099-Misc from the postal service, but they have just been adding the gross amount to line 7 and doing nothing about SE tax. If so, then they have met the burden of reporting the income and the SOL has run on the expired years. IRS had 3 years from the latter of the date of filing or the return due date to catch the good faith error. They didn't catch it, so the story is over for those years.

                      The fact that they failed to pay SE tax on the income is irrelevant for all years prior to 2006. Those years are closed and they have no responsibility to amend the returns. They do have a responsibility to amend 2008, 2007, and 2006, although if they don't get around to doing it by Apr 15, 2010 then 2006 also falls off the table. If this is correct, then it would be wrong to advise them that they need to amend any years prior to 2006. They can voluntarily amend the years covered by the SOL if they wish, perhaps in order to get SocSec quarters coverage for her, but they are under no obligation to do so.

                      Incidentally, we haven't asked what the total amount of each year's 1099-Misc might be, and it would also be important to note that if she has business expenses properly chargeable against the income, that might be important.
                      Last edited by JohnH; 02-18-2010, 04:51 PM.
                      "The only function of economic forecasting is to make astrology look respectful" - John Kenneth Galbraith

                      Comment

                        #12
                        At a recent seminar I was told that Social Security only gives credit for tax returns filed within 3 years, 3 months and 15 days. I don't know how the above scenario will be affected by this. I do know that I would want to talk to the Social Security Administration first before amending the old tax returns, pay, and then not get any credit. This would surely be a scenario where a client could sue the preparer.

                        Comment

                          #13
                          JohnH

                          I believe the husband got a W-2 from somebody, and the wife got a 1099-Misc from somebody (else?). The DIY taxpayers then put her 1099 amount on line 7 with his wages every year. Don't think the issuers of the forms goofed, I think the folks goofed.

                          Ah, the old disability issue... You may be on to something, Piglee.
                          Last edited by RitaB; 02-18-2010, 08:23 PM.
                          If you loan someone $20 and never see them again, it was probably worth it.

                          Comment

                            #14
                            Sorry I did read it wrong, She added it to his W-2 on line 7. Yes she will OWE. OPPS reading to fast again.

                            Comment

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