Services & materials on 1099-MISC

[BP.]

Independent contractor receives 1099-MISC from payer with amount in Box 7. He purchases materials for use in performing services on the payer's properties. The IC turns in the receipts for the materials, and is reimbursed by the payer.

The IC says that in previous years his 1099-MISC only included the payment for his services, not the payments for the materials. His 1099-MISC this year is for the full amount he received from payer, including the materials payments. He thinks this is incorrect; I do not.

It would be easily washed away by taking an offsetting deduction for the materials, but he has already turned in the receipts and hasn't been able to get them from the payer, who he has terminated his relationship with.

I referred him to the 1099 instructions - " ... services, including parts & materials..." He thinks he has read in the instructions that by accounting for the materials to the payer, the payer shouldn't put those payments on the 1099. I'm not finding that language, but rather language to the contrary.

I think his anger at this is getting in the way of seeing the issue correctly, but . . . have I missed something? Thanks!

[solomon]

Although your client does not presently have the receipts, he must have some records of payment for the materials. At least it is a starting point.

[Burke]

I think his anger at this is getting in the way of seeing the issue correctly, but . . . have I missed something? Thanks!

No. You have it right. The previous 1099's were done incorrectly.

[ChEAr$]

This could all have been avoided had the payor written him two checks each time, labeling the one "reimbursement" and not including that with the 1099misc.
That's the way I advise my clients.

[BP.]

Thanks for chiming in- much appreciated, All! Yes, I am trying to get him to focus on gathering what proof he does have.

[S T]

Harlan has a point

Thanks Harlan, point well taken to issue two separate checks and record appropriately for the 1099 MISC.

Otherwise, all is included in the 1099 MISC form to the contractor

Sandy

[rgtaxservice]

I think his anger at this is getting in the way of seeing the issue correctly, but . . . have I missed something? Thanks!

You are right. And the 1099-MISC is correct too. The materials will be washed away.

But in cases of a stubborn PITA client, put the ball back in his court. If he feels the 1099 is incorrect then it's his responsibility to seek out a corrected one. Let him waste his time not yours.

[Lion]

Reimbursements

I worry about a separate check for reimbursements, thinking that seems like an accountable reimbursement policy for employees. I don't want to give the DOL or state DOL a reason to reclassify ICs as employees.

I tell my clients that if they have to turn in receipts as backup documentation for an invoice to a client to include copies to their client and TO KEEP THEIR ORIGINAL RECEIPTS. Even if their client demands originals, the IC can keep copies.

[oceanlovin'ea]

If the total was put on the schedule C and the materials deducted out so that he only paid taxes on his labor and say down the road he was audited. AT that point, could the person who paid him be made to give up copies of the receipts that he turned in to him?

He should have kept copies, that is for sure.

Does this person have someone in the office that would give him copies if he doesn't want to speak with the man himself?

Linda, EA

[BP.]

But in cases of a stubborn PITA client, put the ball back in his court. If he feels the 1099 is incorrect then it's his responsibility to seek out a corrected one. Let him waste his time not yours.

Yes, thanks, I agree. I already rescheduled our meeting for another couple weeks out to give him time to get his documentation together, and more important, to cool down- I don't need to suck up time with HIS venting.

[BP.]

Does this person have someone in the office that would give him copies if he doesn't want to speak with the man himself?

Excellent thought, LInda. I'll float that out to him . . .