1099-misc filing requirements.

[MAJ]

Has there been any changes in the $600 filing requiremets. I say this with respect to NOT filing them and any potential penalties. Every year I have this same client who does not file them and pays sub-contractors and supplies into the thousands.

Frustrating.

[JohnH]

The rules are the same as last year.
How does he answer the 1099 questions?
If he tells the truth, he has a potential problem.
If he doesn't tell the truth, both you and he have a potential problem.

[ATSMAN]

Has there been any changes in the $600 filing requiremets. I say this with respect to NOT filing them and any potential penalties. Every year I have this same client who does not file them and pays sub-contractors and supplies into the thousands.

Frustrating.

Do you have an engagement letter with this client? I warn them of the consequences.

My engagement letter has an addendum that lists some of these rules and they sign that so if they lie to me, hopefully I am protected during audit.

I am cheap, I only charge $10 to prepare and file a 1099-Misc, and mail a copy to the recipient. So they really have no reason to lie.

[August @ ADG Financial]

Engagement Letter

My engagement letter says that if I didn't do the 1099's then they had another service do them. I have them sign off on that fact. I also check the box that they are doing 1099's on the tax forms. I hope this covers me a little in an audit.

[MAMalody]

ATSMAN, could I take a look at your Engagement Letter. I have one, but, I have not reviewed it in two years and it may need updating. If so, please send to ClergyTaxes@aol.com.

[ATSMAN]

Customized Engagement Letter

My engagement letter is customized for each business client and I use the TTB template. This is the paragraph that I insert where a Sch C is involved:

It is your responsibility to provide information required for preparation of complete and accurate returns. You should keep all documents, canceled checks, receipts and other data that support your reported income and deductions. These records will be necessary to prove accuracy and completeness of the returns to a taxing authority.
If you are required under law to issue tax documents such as W2, or 1099 to your employees and sub contractors you must do so within the prescribed timetable. There are significant penalties for failure to follow the law. If you have a payroll service agreement with us that will be covered under that contract, otherwise you are responsible for that and we rely on you to provide us accurate information to prepare your tax return. I will exercise professional judgment in resolving questions where the tax law is unclear.

[MAJ]

Update to 1099-Misc filing requirements....

Thanks for the input. I will use the TTB template this year. Must re-read to see what is in there.
I am on the edge to let him go as a client. I just do not need the headache.
He's grown his business by leaps and bounds (landscaper) and is spinning off a new company as well.
That said, I don't want to let him go as the work and ROI is good.

Does anyone know what the fine is? I want to sent him the link so he fully understands.

As for 1099 creation, I used an on-line services last year. That worked great. They mail and process everything. Cost was minimal.
Cheaper than going out and buying a stack of forms.

I would love to see different engagement letters. My clients seem to think they own me and I have to adjust or provide copies of returns I have prepared.

[ATSMAN]

I do understand the pressure to keep a paying client. But if you feel that he is going to cause headaches for you down the road you have to understand what those risks are and act accordingly. I fired a 1065 client (in the building trade) because I was not at all comfortable with their records and the record keeper (girlfriend of one of the partners) thought she knew more about taxes than me, when she was dead wrong!

You may want to review Cir 230 again to see your role and responsibilities. For 2013 there is still time to issue 1099 and be on the right side of the law.

The fine for not issuing 1099-Misc is I believe:

Issue Form 1099-MISC by the end of February of the year following the tax year in which the income was paid. For example, if you received miscellaneous income in 2013, the paying institution or individual must issue Form 1099-MISC by February 28, 2014. If you fail to do so, the penalty from $30 to $100 per form ($500,000 maximum per year), depending on how long past the deadline the company issues the form. If it intentionally disregards the requirement to provide a correct payee statement, it is subject to a minimum penalty of $250 per statement, with no maximum.

[JohnH]

Your engagement letter might protect you, but you can be sure the client will try to throw you under the bus if he gets audited and finds himself facing those 1099 penalties. And IRS might just take his side, since your engagement letter actually implies a negative confirmation. Also, since he's flagrantly skirting the law on this issue, wonder how many more time bombs are on his return?

[mastertaxguy]

Keeping the client

I do understand the pressure to keep a paying client. But if you feel that he is going to cause headaches for you down the road you have to understand what those risks are and act accordingly. I fired a 1065 client (in the building trade) because I was not at all comfortable with their records and the record keeper (girlfriend of one of the partners) thought she knew more about taxes than me, when she was dead wrong!

You may want to review Cir 230 again to see your role and responsibilities. For 2013 there is still time to issue 1099 and be on the right side of the law.

The fine for not issuing 1099-Misc is I believe:

Issue Form 1099-MISC by the end of February of the year following the tax year in which the income was paid. For example, if you received miscellaneous income in 2013, the paying institution or individual must issue Form 1099-MISC by February 28, 2014. If you fail to do so, the penalty from $30 to $100 per form ($500,000 maximum per year), depending on how long past the deadline the company issues the form. If it intentionally disregards the requirement to provide a correct payee statement, it is subject to a minimum penalty of $250 per statement, with no maximum.

Good point: pressure to keep a paying client. What about the pressure of not buying yourself (as a preparer) an audit? Some of you reading this are getting the taxpayers to which I have "suggested" they find another preparer: I don't buy audits knowingly.

[MAJ]

The paper trail...... Can you follow it??

I scan and keep every document that the client gives me. NORMALLY these documents relate to the individual line items.
Obviously I do not get every receipt the client has. But I need totals on a page. Something to go back to.
If a client is not sure I cannot help them and advise them the IRS is getting more technical and able to track much better.

If I do not get the 1099-Misc data this week then I do not believe I will be able to help him. I want to take over his books on a monthly basis. That is the goal. If I achieve that my headaches go away.

Gents, Thank for the information... Appreciated.

[ATSMAN]

I love clients who use some sort of automation to keep track of their AR and AP. Most of my clients who have Quickbooks will give me the file, others will print to a pdf the necessary pages. I hate the shoebox clients with their receipts wrapped in rubberband and a sticky with the totals!

[taxea]

I would not include the IC expense in the client's tax return if he can't document the payment. This is a requirement of the law. With all the updating in the IRS computers I believe they will soon send letters requesting documentation of the sub contract expenses. At the beginning of my services to the client I make this law very clear. When I send out worksheets for expenses I ask for name/address/SSN or EIN and amt paid over the year to each sub. I don't need a copy of the 1099 but if the client doesn't provide the requested info I don't expense it on the return.

There is possible penalty to preparer for failing to file an accurate return. If the two 1099 questions on the business form are answered truthfully then the issue is between the IRS and the taxpayer.

Penalty to client info: http://borgidacpas.com/2012/08/4-rea...-irs-form-w-9/

[JohnH]

There's no problem with expensing the IC payments even if no 1099 is issued. That's a practice followed only by preparers who think it's their job to punish the client. I've never seen anyone provide a cite which says that this must be done. Nothing but a little anecdotal evidence from one or two audits where the preparer caved in or where there were larger issues to be avoided.

If it were not permissible to take the deduction without having issued 1099's, then there would be no need for the two 1099 questions on the Schedule C. Answering those questions correctly doesn't disqualify the deduction, it only increases the probability of an examination of the return.

[JON]

Why not

have the two 1099 questions listed exactly as they are presented by the IRS on their forms?? That is what we require in the engagement and it is signed by the clients.

Also have any other questions that are required to be answered in the return - worded exactly as the IRS has them.

I had a preparer that is a friend who had a roofer 10 years ago who did not 1099'd subs and lost the deductions. Now some of that was cash tranactions - so I have been more than willing to say 1099 if you do not have invoice to back up the work or you may not get the deduction if audited, plus the 1099 penalty may come into play.

I think the concerns are correct here. This is a problem with small business. My clients have become a lot better. Their are more audits and computers are a huge help and huge also a huge help to the IRS.