1099 Revenue Ruling

[MarkCTX]

Wasn't there a recent revenue ruling that said if you do not issue 1099's when you are required to do so and you are audited, the expense deduction is denied? Anyone have that cite? Thanks for any help.

Mark

[BOB W]

I've been through such an audit and the auditor just required that the 1099s get issued. The first auditor wanted to disallow but then the second auditor said get the 1099s issued. This was 2 years after the tax return was filed.

Bottom line, seems they could disallow, or at least threaten.

[JohnH]

No, there is no such cite or ruling to be found. It is a rumor that some accountants like to bandy about, it think it's because they get too wrapped up in trying to do IRS's job for them.

Bob W gave you an insight into first-hand experience and how it is supposed to be done if the tax preparer is interested in helping their client.

[MDEA]

1099 Revenue

Just had an audit did not do the return was not allowed deduction for expenses for 1099 's not issued. The problem was he did not have names or SS numbers.

[ATSMAN]

Was the payment in cash?

No names, no ss#. How did he pay cash? Did he get a receipt?

[JohnH]

I can understand no SocSec numbers. But no names? This was not a 21099 issue - he lost the deduction on the basis of no recordkeeping. He could just as easily been denied a deduction for materials purchases under these circumstances, and for good reason.

[MDEA]

1099

Paid cash kept no records. Original audit started by 1099K being greater than reported income.

[ATSMAN]

Paid cash kept no records. Original audit started by 1099K being greater than reported income.

Hate to say it but it serves him right!

The tax preparer who prepared that return and filed it may be guilty of malpractice!

[MDEA]

1099

The preparer died this is one of three clients I have picked up.The other two were W=2's so they are fine,

[ttbtaxes]

Hate to say it but it serves him right!

The tax preparer who prepared that return and filed it may be guilty of malpractice!

It's a tough one. Who among us looks at every transaction in a client's business to determine such as status? You can't. You use your trained eye to narrow down the odds of catching it but we can never be fully confident there isn't an item such as this unearthed.

[DaveO]

It has been my experience that the auditor will threaten to deny the deduction if 1099 forms were not issued but if you can provide clear proof the payments were made they will relent. As other posters have noted, this guy lost because he paid in cash without good records. There is one compelling reason to issue 1099 forms. In the event of an employee classification audit you have no safe harbor if you have not properly issued 1099 forms. I had one of these where they determined he had misclassified nearly all his “subs”. We avoided all the late payment penalties on the taxes assessed because all the 1099 forms were properly issued. The audit covered two years and was complete two years after the last audit year. Re-classed payments were over $200,000 so the penalties would have been huge. Instead he paid the tax and went on.

[Uncle Sam]

1099 Issue

I have an S corp client who issues 1099s to outside contractors, some of them come from a temp agency (made to a business corp - no 1099 required).
However, client started making checks payable directly to the temp person for transportation reimbursement, not for compensation service fee.
I warned client about this - but she persisted in writing checks to individual payee - and I advised her that if she's going to do that, pay the temp
agency more money, and let the temp agency work out the reimbursement issue.
Came 1099 issuance this month, I put in "nondeductible business expense' the amount in excess of $ 600 paid to this person - as the person is
no longer working there and client never received her Soc Sec number or address.
I won't take chances on this issue - either client complies or no deduction - I don't want to give IRS another issue to pick up on audit.
I realize I shouldn't have even deducted the $ 600 amount.

[taxea]

Seems to me I recall a penalty per 1099 when not issued

[Burke]

I have an S corp client who issues 1099s to outside contractors, some of them come from a temp agency (made to a business corp - no 1099 required).
However, client started making checks payable directly to the temp person for transportation reimbursement, not for compensation service fee.
I warned client about this - but she persisted in writing checks to individual payee - and I advised her that if she's going to do that, pay the temp
agency more money, and let the temp agency work out the reimbursement issue.
Came 1099 issuance this month, I put in "nondeductible business expense' the amount in excess of $ 600 paid to this person - as the person is
no longer working there and client never received her Soc Sec number or address.
I won't take chances on this issue - either client complies or no deduction - I don't want to give IRS another issue to pick up on audit.
I realize I shouldn't have even deducted the $ 600 amount.

Yes, you are correct. The IRS will disallow the $600 if they pick it up in an audit. Practices like these by some companies, and their failure to stop it after I advised them, are the reason I dumped two of my S-Corp clients.