Land Sale Reported On 1099MISC

[Burke]

Agree with Jesse here. The Sche C is not relevant except for the purpose of matching with IRS computers (in the initial stage of preparing a valid return -- not in this case after the fact and circumstances as stated). Then reporting it correctly on Sche D as a sale.

On the second point, if TP is a real estate developer where the land is inventory, it is correctly reported on a Sche C as gross profit, less COGs (basis). That info was not qualified in OP, but could be the case.

[Jesse]

I've on occasion done a "dummy" schedule C to avoid follow up correspondence. Last year someone won a trip and the radio station reported it on 1099MISC as Non-employee Compensation. Went round and round and they would not correct to put in other income box so I did a Schedule C and put in other expenses "Prize won - transferred to line 21".

If it was a real estate developer a schedule C could be required with the "land" being inventory.

[FEDUKE404]

Confusion abounds

Other than to "correct" a possibly erroneous Form 1099-MISC (in what box was the sale income actually reported?), I'm a bit confused as to how a Schedule C could ever be relevant here.

What business code would you use on the Schedule C??

...And I also remember recent discussions here that Schs C/SE would not be used anyway unless the client R-E-A-L-L-Y was in "business." (You know, ye olde guy putting up the windows or "he only did it once" et al discussions.)

From the outside looking in, this entire situation sounds like a Sch D activity - maybe a 4797 if the facts fall into place.

Do you think perhaps the original lawyer just did not have any Forms 1099-S lying around the office?

Now back to my morning coffee....

FE

[Snaggletooth]

Horse Out of the Barn

Dany, the horse is already out of the barn. The IRS will have to change their records once they are convinced the error was made by the issuer of the 1099-MISC. A Schedule C at this point is too late (if indeed it was a viable idea to begin with).

But the burden is on your client. The "matching" program used by the IRS will assume the amount of the 1099-MISC is Revenue to be shown on the Sch C, with NO EXPENSES to offset the revenue. Then it will be taxed at ordinary income rates, PLUS self-employment. The corrected version will instead show a capital gains transaction, with a possible basis. The tax differential has a potential to be substantial. Proposing a lower tax definitely places the burden on your shoulders.

Add to this the fact that he hasn't filed in nearly 5 years. Not pretty, but salvageable. Get as many documents as you can, preferably a closing statement with an amount on it that agrees with the 1099-MISC.

[Gary2]

I was trying to figure out how to handle the sale of the shoreline. Would it be similar to the sale of easement as far as allocation of basis?

The default rule for an easement is that you don't allocate the basis, unless you can show that it only affects part of the property. In this case, you have an outright sale, so you have no choice, and being shoreline, I doubt any proportional approach based on land area would be right. I'd imagine you'd need an appraisal, allocating the basis according to relative value.

[geekgirldany]

"he sold a piece of shoreline to a subdivision developer"

By what logic would you "offset" this?

If it were an easement, there could well be different issues at hand but that does not appear to be the case. Even so, there would still likely be legit tax issues, using allocated cost basis et al.

As for "What paperwork will be needed to prove the 1099-Misc was incorrectly issues?" what exactly would be your basis for stating said document was incorrectly issued?
FE

I was trying to figure out how to handle the sale of the shoreline. Would it be similar to the sale of easement as far as allocation of basis?

As far as proving the 1099MISC was incorrect... I thought signed documents showing the sale and any other information he could dig up would prove it was reported wrong.

[geekgirldany]

One way might be to report it on Schedule C with an offsetting cost or expense to zero it out, then report it as it should be if there had been no 1099. This would be a little unorthodox, but would not be evading any tax. It would be similar to the way tax preparers often handle Corporate income that is reported to the owner's SSN instead of the Corporate EIN.

This might preclude any IRS inquiry, but if the IRS did question it, then the letters and documents evidencing that it was a land sale should satisfy any auditor.

Thanks so much. Well the IRS has already caught the 1099-MISC and is what led to the CDP hearing. So I am not sure if the Schedule C would work or not. I'll have to think on that. Good suggestion. I guess I will just have to end up trying to prove it was not a 1099misc through letters and documentation.

[FEDUKE404]

Did I miss something here?

"he sold a piece of shoreline to a subdivision developer"

By what logic would you "offset" this?

If it were an easement, there could well be different issues at hand but that does not appear to be the case. Even so, there would still likely be legit tax issues, using allocated cost basis et al.

As for "What paperwork will be needed to prove the 1099-Misc was incorrectly issues?" what exactly would be your basis for stating said document was incorrectly issued?

Perhaps I need to take off my tax bifocals and just go back to watching boring stuff on TV....

FE

[taxxcpa]

Erroneous 1099

One way might be to report it on Schedule C with an offsetting cost or expense to zero it out, then report it as it should be if there had been no 1099. This would be a little unorthodox, but would not be evading any tax. It would be similar to the way tax preparers often handle Corporate income that is reported to the owner's SSN instead of the Corporate EIN.

This might preclude any IRS inquiry, but if the IRS did question it, then the letters and documents evidencing that it was a land sale should satisfy any auditor.

[geekgirldany]

I have a client that is getting caught up on past years tax returns.

I am starting on 2005. For that year he sold a piece of shoreline to a subdivision developer. This sale was reported on a 1099-MISC as non employee income. Had not seen the guy for awhile when he came by to get caught up on taxes. He showed me some notices and I saw it right off. I told him to get in touch with the developer. Developer said "accountant prepared it, talk to my assistant". Client could never get assistant. So it is left as a 1099-Misc. I told him to keep trying.

There is a CDP hearing scheduled at the end of the month.
So I need to get this return completed. I have a few questions:

1. Can the sale of shoreline be treated the same as sale of easement?
For example the allocation of basis.

2. What paperwork will be needed to prove the 1099-Misc was incorrectly issues?
I am thinking any letters regarding the sale, attorney paperwork, etc.

Thank you all for any help
Dany