Payments for service

[AccTaxMan]

A taxpayer used his car for business. He brought the car to a garage for repairs and paid them more than $600 in 2012. The taxpayer has to find out if the garage is a corporation or not. So he will have to call the garage and ask the garage owner whether his business is a corporation or not. In case the garage is a sole proprietorship or a partnership, the taxpayer has to ask the garage owner for their federal ID number and issue a Form 1099-misc to him. Have I understood the rule correctly?

[ChEAr$]

Properly the taxpayer needs a completed W9 form from the garage on file, the purpose of which is not only to provide ID information but also swear/affirm/attest that payee is not subject to backup withholding.

[Kram BergGold]

Business %

For instance, if the car was only 50% for business then the repair would need to $1200.

[AccTaxMan]

Properly the taxpayer needs a completed W9 form from the garage on file, the purpose of which is not only to provide ID information but also swear/affirm/attest that payee is not subject to backup withholding.

Well, I would really like to know how my fellow tax professionals handle this issue. For those clients who are in business or rental activity, shall we force them to obtain the W-9 from the vendors and then issue a Form 1099 to everyone before we can complete the tax return? And what can we do if we fail to get our client doing that?

[Traveling EA]

W-9

As CHEAr$, siaid it is the only way to find out if the vendor is subject to backup withholding. If you read the instructions, they say that if the vendor refuses to profide the information, then backup withholding is required. I advise my clients to get a copy of the W-9 prior to paying the vendor. If the vendor is paid by CC, then the CC card companies are supposed to take care of the the reporting.

[AccTaxMan]

As CHEAr$, siaid it is the only way to find out if the vendor is subject to backup withholding. If you read the instructions, they say that if the vendor refuses to profide the information, then backup withholding is required. I advise my clients to get a copy of the W-9 prior to paying the vendor. If the vendor is paid by CC, then the CC card companies are supposed to take care of the the reporting.

I have no problem to advise them to get a W-9 and it would be great if they follow our instruction. But what about if they do not? Would you tell them to go back to complete the whole process first before you prepare the tax return for them?

[Kram BergGold]

W-9 issue

Schedule C requires us to tell IRS if client was required to file 1099 and if client did file 1099. As far as I am concerned, if my client says the answers are yes and yes I am a happy camper. W-9 is not my problem. I have been in audits in which the lack of 1099's was an issue. Not once has the examiner brought up the issue of a W-9 or back up withholding.

[AccTaxMan]

Schedule C requires us to tell IRS if client was required to file 1099 and if client did file 1099. As far as I am concerned, if my client says the answers are yes and yes I am a happy camper. W-9 is not my problem. I have been in audits in which the lack of 1099's was an issue. Not once has the examiner brought up the issue of a W-9 or back up withholding.

Thank you for your opinion.

Now let's just talk about the Form 1099. If our client has paid $600 to someone for service and we have problem to push the client to file the Form 1099, is "showing him to the door" our only option?

[ChEAr$]

Thank you for your opinion.

Now let's just talk about the Form 1099. If our client has paid $600 to someone for service and we have problem to push the client to file the Form 1099, is "showing him to the door" our only option?

Preparing an income tax return is not dependent on whether or not 1099's have been done. The amounts are duly reported on the tax form involved and the questions answered: liable? and did you? In short, it's always client's responsibility.

[AccTaxMan]

Preparing an income tax return is not dependent on whether or not 1099's have been done. The amounts are duly reported on the tax form involved and the questions answered: liable? and did you? In short, it's always client's responsibility.

Got it. Then how would you answer the two questions?

Would you answer...'yes' the taxpayer is required to file the Form 1099, but 'no' he will not file the Form 1099?

Or is leaving the answer blank an option?

[Kram BergGold]

Yes and no

You tell your client, if you are not going to prepare a 1099 then I have to tell IRS that you are not preparing all 1099's and this might increase your audit risk. Then the client gets to decide if you wants you to continue or take his business elsewhere. Honestly, I would assume that all garages are incorporated. The lawsuit potential is too great.

[taxea]

Well, I would really like to know how my fellow tax professionals handle this issue. For those clients who are in business or rental activity, shall we force them to obtain the W-9 from the vendors and then issue a Form 1099 to everyone before we can complete the tax return? And what can we do if we fail to get our client doing that?

If he paid the bill with a credit card they will issue the 1099k to the repair shop whether he used a business cc or a personal cc.

Rental owners do not have to issue a 1099 to anyone unless they are in the business of renting property or they use a management company. In which case the management company would be handling the income and repairs and they would issue the 1099's. If the owner paid with a credit card the cc company will issue the 1099 to the vendor.

[ChEAr$]

You tell your client, if you are not going to prepare a 1099 then I have to tell IRS that you are not preparing all 1099's and this might increase your audit risk. Then the client gets to decide if you wants you to continue or take his business elsewhere. Honestly, I would assume that all garages are incorporated. The lawsuit potential is too great.

Oh gee, Mark. You'd give client the option of taking his business elsewhere? (grin

[taxxcpa]

Suppose the garage is a sole proprietor and he does not give you a TIN. Next time you get your car repaired, do you withhold back-up withholding when you pay your bill?

If you tried to do that, you might not get your car back.