Client received a 1099-misc with income that the client states is not accurate

[GABRIEL]

How would one report this on a tax return, if the client is stating that the dollar amount listed on the 1099-misc is incorrect? The client interpreted the gift as a gift, not as income.Thank you.

[ATSMAN]

How would one report this on a tax return, if the client is stating that the dollar amount listed on the 1099-misc is incorrect? The client interpreted the gift as a gift, not as income.Thank you.

Is this reported under box 7? That will be problematic to explain as a gift!

[David1980]

The client interpreted the gift as a gift, not as income.Thank you.

Whether the income is really a gift or something else really depends on more than just what the client interpreted it to be. I could interpret my clients are giving me gifts and I in turn am gifting them tax return preparation.

For a 1099-MISC in dispute, especially one where taxpayer acknowledges that they have received the money, I would be asking more questions about the nature of the "gift" and their business relationship with the other person. If taxpayer provided services to the issuer there'd have to be some strong reason for me to treat it as anything other than income.

Probably the best way to get this handled if it really isn't income is to get the issuer to do a corrected 1099-MISC for $0.

[GABRIEL]

Re: David1980

Thank you for your feedback!

[JenMO]

my client received a 1099 misc - rent that was never paid. Client thinks he will never get the money and doesn't want to report on money he hasn't received. he feels by reporting and them adjusting the amount off will look to his renter that he did receive, if the renter contests the amount not being paid. renter had been late before and my client reported and eventually received the rent. I wonder if the renter is reporting back rent - paid late in 15 for 14 and now thinks he has paid for 2015. I believe my client, always has been honest with me.

[Burke]

Post is a little confusing. "Renter had been late before and client reported and eventually received the rent." Your client reported (on his tax return) rent he had not actually received?
Why would he do this?
As far as reporting incorrect income and then backing it off, I fail to see where the renter would ever know what the client has done on his tax return. Either the tenant has paid the rent or not -- and that should be documented by other records, like QuickBooks, bank deposits, etc. if a dispute arises.
If the renter paid back rent for a prior year in 2015, it should be properly reported in 2015. If the 1099 is actually incorrect, your client should contact your renter in writing and advise him of such, asking for a corrected 1099.

[JenMO]

he received t he 1099 and fully expected to receive t he rent.
Asking the renter to give out a corrected 1099 sounds like the right solution, but what if he refuses?
Client was being considerate and trying to help out his renter. Possibly the tax preparer does not know the circumstances and is just reporting what he/she sees.

[Burke]

I still don't get it. You DO NOT report rent as income if you don't receive it. Client should demand that renter adjust the 1099 and document it.

[David1980]

I think there's two main schools of thought on erroneous 1099's. One would be to prepare the return without the 1099 income and deal with the IRS letter when it comes. The other is to enter the 1099 income and then enter an offsetting expense to zero it out with the objective being to avoid the IRS letter. Personally I fall into the first group.

[taxea]

If you wait for an IRS letter there will be penalties and interest for failure to report. It is better to report the 1099 with the amount on it, then make an adjustment with a detailed statement explaining the error.

[David1980]

If you wait for an IRS letter there will be penalties and interest for failure to report. It is better to report the 1099 with the amount on it, then make an adjustment with a detailed statement explaining the error.

I don't believe the IRS can assess penalties and interest for failure to report non-existent income.

[S T]

Whether or not 1099 forms should be issued or not is another dilemna --I believe the only issue is whether or not the Taxpayer can "prove" non-existant income. And I belive most of us know that it is 1 year to 2 years before we receive that notice CP2000 or other. I don't like those notices!

Remember the CP2000 notices I believe are on more of a Computer document match rather than a "human" match. Not sure which one is worse.

Guess I am in the Group to Report as Income and then make another entry to reduce that amount as expense with a notation.

Sandy

[JohnH]

I'm inclined to go with the Group to Report as Income as well. The line entry for the deduction might be something as simple as "Adjust from Accrual to Cash Basis" or something along those lines. And file by paper. The explanation will be buried so deep in the weeds that it won't even be noticed. But even if it is noticed, the entry is truthful. And it will nullify the risk of a CP 2000 coming in 2 years from now, when all the memories have grown cold.

[RitaB]

Agree

I'm inclined to go with the Group to Report as Income as well. The line entry for the deduction might be something as simple as "Adjust from Accrual to Cash Basis" or something along those lines. And file by paper. The explanation will be buried so deep in the weeds that it won't even be noticed. But even if it is noticed, the entry is truthful. And it will nullify the risk of a CP 2000 coming in 2 years from now, when all the memories have grown cold.

Yes, I'm in the camp that would nip it in the bud now. Less aggravation for me, too, since I would not charge the client to fix it later since I know I can fix it now. Clients don't like letters. Tax preparer takes the rap for those most of the time. Bad publicity, regardless of who is really at fault. Client does not know or care who is ultimately at fault.

[JenMO]

I agree taking care of now instead of later. I think his problems started a couple of years ago, but showing up now.