1099 reporting and not reporting

[JenMO]

Clients are just now filing, they should have filed 1099's but not having their bookwork done, I didn't know, and they probably knew, but just didn't get with me in Jan. when I answer the questions, I put "yes" - did you make payments. "No" didn't file required forms. will this generate a letter and a 1099 audit?

[TAXNJ]

Correctly

Clients are just now filing, they should have filed 1099's but not having their bookwork done, I didn't know, and they probably knew, but just didn't get with me in Jan. when I answer the questions, I put "yes" - did you make payments. "No" didn't file required forms. will this generate a letter and a 1099 audit?

Now that you answered the questions correctly and if letter is received, reply with the answer as to why not filed on time if you think might qualify for an exception of any penalities. IRS has recently increased late filing penalties. That just might get clients to file on time.

[taxea]

I just hate it when people start businesses before researching what all a business owner is responsible for. I don't think the IRS would consider that the bookwork was not kept up as a valid reason for waiving penalties. How would the TP not know how much money was paid out that required 1099's sooner than now? Tell them they need to hire someone to do their books and other required third party forms on a timely basis. Let them pay the penalty, hopefully it will teach them a lesson.

[JohnH]

Can't figure out how a professional tax preparer gets to the point that they would enjoy seeing their clients penalized.
But on the positive side, it reminds me of one of my favorite Cheers episodes...

https://www.youtube.com/watch?v=KZag1zlecGI

[TAXNJ]

John to the rescue

Can't figure out how a professional tax preparer gets to the point that they would enjoy seeing their clients penalized.
But on the positive side, it reminds me of one of my favorite Cheers episodes...

https://www.youtube.com/watch?v=KZag1zlecGI

Think you read the Original Post wrong. It was the client that did not provide the information on time. The IRS assess the penalities.

Now that you commented on the tax professionals how would you rescue the client in ths posted situation was the question?

Cheers

[JohnH]

My response was directed to the last sentence of the reply just prior to mine. (i.e. - "Let them pay the penalty, hopefully it will teach them a lesson.")

As far as the original post was concerned, the preparer answered the questions honestly - that's all there is to be done.
I think those check boxes are "gotcha" questions to use in beating the client and preparer over the head if an audit occurs (nothing more).

Absent an audit, nothing is likely to happen insofar as penalties are concerned.

But any time a client is assessed a significant penalty, a tax pro who is trying to give the best possible service should help them try to get it forgiven. If it's the preparer's fault, the effort should be at no cost to the client. If it's the client's fault, the preparer should charge for their work. Now if the client doesn't want to pay for the work, that is their call. I've seen some pretty shaky penalty forgiveness requests approved, and I've seen some valid ones denied repeatedly. In some cases a conference call works better than a letter. Facts & circumstances dictate what to do. But at the end of the day it's strictly luck of the draw when you don't have something firm to hang your hat on. And it is defnitely getting harder to get forgiveness.

[TAXNJ]

Good

My response was directed to the last sentence of the reply just prior to mine. (i.e. - "Let them pay the penalty, hopefully it will teach them a lesson.")

As far as the original post was concerned, the preparer answered the questions honestly - that's all there is to be done.
I think those check boxes are "gotcha" questions to use in beating the client and preparer over the head if an audit occurs (nothing more).

Absent an audit, nothing is likely to happen insofar as penalties are concerned.

But any time a client is assessed a significant penalty, a tax pro who is trying to give the best possible service should help them try to get it forgiven. If it's the preparer's fault, the effort should be at no cost to the client. If it's the client's fault, the preparer should charge for their work. Now if the client doesn't want to pay for the work, that is their call. I've seen some pretty shaky penalty forgiveness requests approved, and I've seen some valid ones denied repeatedly. In some cases a conference call works better than a letter. Facts & circumstances dictate what to do. But at the end of the day it's strictly luck of the draw when you don't have something firm to hang your hat on. And it is defnitely getting harder to get forgiveness.

Good and thorough response as usual from you

[Nashville]

Effect of a Penalty

Let them pay the penalty, hopefully it will teach them a lesson.

Some few of them learn their lesson, most do not. The more likely effect of a penalty is they will simply work with their recipients to go underground or simply quit filing altogether. As is so often the case, if IRS would get off their butts and get out into the field instead of depending on their computers to do their auditing for them, more of the underground would be brought to light.

Not to mention that penalties compete with tax preparers for available funds. Maybe your clientele is so massive that you don't need these customers, but if you are trying to get these clients straight, they will have to pay you with money left over after they pay these penalties. The IRS "teaching them a lesson" can find its way to your own pocketbook.

[TAXNJ]

True

Some few of them learn their lesson, most do not. The more likely effect of a penalty is they will simply work with their recipients to go underground or simply quit filing altogether. As is so often the case, if IRS would get off their butts and get out into the field instead of depending on their computers to do their auditing for them, more of the underground would be brought to light.

Not to mention that penalties compete with tax preparers for available funds. Maybe your clientele is so massive that you don't need these customers, but if you are trying to get these clients straight, they will have to pay you with money left over after they pay these penalties. The IRS "teaching them a lesson" can find its way to your own pocketbook.

Especially when you say. "Not to mention that penalties compete with tax preparers for available funds.....""The IRS "teaching them a lesson" can find its way to your own pocketbook." but it is realistic that some clients do not like taxes let alone tax preparers when it hits their pocketbooks.

[taxea]

Can't figure out how a professional tax preparer gets to the point that they would enjoy seeing their clients penalized.
But on the positive side, it reminds me of one of my favorite Cheers episodes...

https://www.youtube.com/watch?v=KZag1zlecGI

I didn't say I enjoyed it but "you can lead a horse to water......" these are supposed to be responsible adults. I am sure their preparer diligently advised them of their responsibilites and the consequences well before this occurred.

[Gretel]

My 2 cents

It seems the 1099's were never filed, in time or late. The penalty is the same as far as I know. I believe you could only ask for abatement of the penalty if the 1099's were actually filed. I also believe the IRS will make you file them if they indeed catch this. I believe the original question was related to this being a red flag. I checked the boxes the same way multiple times and have never heard anything. I advise these clients the the penalty is the same for late filing or not filing and all of them choose not to file and wait and see if the IRS sends them a letter.