1099-Misc due diligence question

[Happy Camper]

I have a client who prepares their own 1099-Misc but I review books and give a list of possible recipients or which ones need W-9 to determine if 1099-Misc is required. Client 'does not have W-9's for anyone' and does not necessarily do 1099-Misc for vendors I believe should be recipients. (obviously individuals)

I prepare tax return-question on tax return is 'were you required...' and 'did you prepare...'. Yes would be the proper response for both of these items, however, maybe four 1099-misc should have been prepared and only one was done.

Does due diligence and/or best practices require the preparer have a copy of the 1099's and has determined that all have been filed? Or have I fulfilled my responsibility if I inform the client that if there were 1099-Misc required to be filed and if they were not filed, the expense could be denied in an audit.

I appreciate any input

[taxea]

IMO the second question would be were 1099misc's issued. Just cause they did them doesn't mean they reported or sent them. Your client is required to obtain a W-9 for any worker that should be issued a 1099misc at year's end. Does your client know that there is a penalty for not obtaining the W-9?
I, as part of due diligence, require a copy of every 1099misc so I can list each on the tax return.

[Nashville]

Can't Do It

Camper, I don't think you can let him do whatever he pleases and achieve due diligence.

What I do in a situation like that (and my remedy isn't exactly the sublime professional solution either):

"Mr. Spudnut, the only way you can avoid issuing 1099s to recipients is if they are not doing business-related work. That means you have to issue 1099s or else not claim the payments as deductible expenses."

"Essentially, YOU are ending up having to pay THEIR taxes simply because THEY don't want to report their receipts."

(Under IRS law, you still don't even have that option, but telling them this usually gets their attention)

[taxea]

I explain the consequences of taking the expenses without the documentation (W-9 and 1099misc). I tell them I have a license to protect and if they want to take these expenses they have to provide me with what it takes to include them on the return.

[Toobusy]

I have a client who prepares their own 1099-Misc but I review books and give a list of possible recipients or which ones need W-9 to determine if 1099-Misc is required. Client 'does not have W-9's for anyone' and does not necessarily do 1099-Misc for vendors I believe should be recipients. (obviously individuals)

I prepare tax return-question on tax return is 'were you required...' and 'did you prepare...'. Yes would be the proper response for both of these items, however, maybe four 1099-misc should have been prepared and only one was done.

Does due diligence and/or best practices require the preparer have a copy of the 1099's and has determined that all have been filed? Or have I fulfilled my responsibility if I inform the client that if there were 1099-Misc required to be filed and if they were not filed, the expense could be denied in an audit.

I appreciate any input

You have done your Due Diligence by informing her. Also, inform her that the penalty is very steep for failure to file a 1099 misc if she paid $600 or more for services. However, if the tax preparer did not prepare the 1099-misc, s/he does not need a copy of it.

[Happy Camper]

I appreciate the input!

taxea - I am not sure I am clear on what you are saying:

I explain the consequences of taking the expenses without the documentation (W-9 and 1099misc). I tell them I have a license to protect and if they want to take these expenses they have to provide me with what it takes to include them on the return.

I was talking about a 1065. To the best of my knowledge, the 1099's are not required to be reported on the return, only if they were required to file them and if indeed they did file. When you say 'include them on the return' are you talking about including in the company expenses?

IMO the second question would be were 1099misc's issued. Just cause they did them doesn't mean they reported or sent them. Your client is required to obtain a W-9 for any worker that should be issued a 1099misc at year's end. Does your client know that there is a penalty for not obtaining the W-9?
I, as part of due diligence, require a copy of every 1099misc so I can list each on the tax return.

Again, not clear on this statement-how are they listed on a 1065? Am I missing something?

[Roland Slugg]

If I were to encounter that situation and was sure there were unfiled 1099s, I would inform my client that the question on the tax return ("Have all required 1099s been filed") would have to answered "No." He may then decide to prepare and file the missing ones, and if he didn't, the A to that Q on the tax return would remain "No."

[taxea]

taxea - I am not sure I am clear on what you are saying:

Quote Originally Posted by taxea View Post
I explain the consequences of taking the expenses without the documentation (W-9 and 1099misc). I tell them I have a license to protect and if they want to take these expenses they have to provide me with what it takes to include them on the return.
RESPONSE:
the consequences to TP are penalties for not issuing the 1099's, if expenses were deducted and no 1099's issued the IRS may deny the deduction which could result in a higher tax liability, penalty and interest
The license issue is my EA license which could result in a penalty if the IRS decides that the deduction should not have been taken and I knowingly included it on the return.

I was talking about a 1065. To the best of my knowledge, the 1099's are not required to be reported on the return, only if they were required to file them and if indeed they did file. When you say 'include them on the return' are you talking about including in the company expenses?

RESPONSE: It doesn't matter to me whether it is required. I have learned over the years that the more detail I include when preparing a return the easier it is to respond to any audits or notices from the tax agency.
How do you input them as expenses on the 1065? I detail each expense and open the line magnifying glass window where I list each separately as:
1099misc to SSN XXX-XX-XXXX and the amount of the 1099misc in the amount column. The program creates a total of all 1099misc pmts and transfers it to the expense line on the main form.
I do this anywhere on the return when I think further information would be useful in the future. It is like using the "preparer notes" option except that doing it in the magnifying glass window causes it to print as a statement/s at the end of the return rather than me having to look for and open preparer notes.
Believe me this make take a bit longer but it has saved me untold time and effort many many times when responding to audits, etc.
If I think it will benefit the IRS, my client or myself in the future I sometimes include a detailed STATEMENT OF FACTS and attach it to the return.


Again, not clear on this statement-how are they listed on a 1065? Am I missing something?

RESPONSE: Better now?