Received 1099-Misc instead of 1099-S

[ruthc]

Client sold some land. The lawyer sent him a 1099-MISC for the proceeds as non-employee compensation (box 7). The amount is correct. The client contacted the lawyer to amend and issue the correct form. The lawyer will not respond to the client after numerous attempts. I would like to prepare the return by completing Form 8949 (line C&F -did not receive a form 1099) with the correct figures (the proceeds amount would be the same as the amount on the 1099-MISC) along with the rest of the figures as adjustments and basis to get to the gain/loss. I would also attach a PDF with the breakdown AND a note about the incorrect 1099-MISC.

Do you think this would eliminate any problem with the IRS? Or should I use line B&E- a 1099 was received but no basis reported to the IRS? Any other suggestions?
Thanks for any responses.

[ATSMAN]

Prepare a Sch C and net out the amount on box 7 so that net profits are 0 and write an explanation as an attachment to why you are doing. If it is a investment property report the capital gains/loss on Sch D.

[ruthc]

Prepare a Sch C and net out the amount on box 7 so that net profits are 0 and write an explanation as an attachment to why you are doing. If it is a investment property report the capital gains/loss on Sch D.

Thanks ATSMAN..... So I could net out the amount on box 7 Gross Income in Part V Other Expenses? Wouldn't that send a red flag to the IRS even though I attach a statement? I suppose it is better than not including the amount at all?

[ruthc]

Oh, then I would also have to list info about his business at the top of Sch C? What to list? Never got into a situation like this before. Makes me nervous, but if it is ok to do I will. Sounds like it has worked for you in the past. Never got into an audit situation (40 yrs) so I want to keep it that way. Thanks so much for your responses!!!

[Burke]

IMO, the best way to handle it is on the worksheet for Sche 1, Line 8, Other Income. Show on line for 1099MISC, non-employee comp and then back it out on the bottom line so it nets to "0." Then report correctly on 8949 and/or Sche D. No Sche C. If TP gets correspondence from IRS, that is the time to respond with documentation and explanations.

[ruthc]

IMO, the best way to handle it is on the worksheet for Sche 1, Line 8, Other Income. Show on line for 1099MISC, non-employee comp and then back it out on the bottom line so it nets to "0." Then report correctly on 8949 and/or Sche D. No Sche C. If TP gets correspondence from IRS, that is the time to respond with documentation and explanations.

Burke, I love it!!! Nice and clean. Thanks ATSMAN for your suggestion also. I feel a lot more comfortable doing what Burke suggested. Thanks so much for all responses. It is appreciated more than you know!!!

[ATSMAN]

Over the years this is what I have observed with automatic CP2000 generation:

1) If there is a 1099-Misc with box 7 amount that has not been included in a Sch C it triggers a flag. So the the best way to turn that off is prepare a Sch C and net out so it is 0.

2) Then include that income in the proper line so that the tax results are correct. This avoids penalty and interest.

No one at IRS reads those explanations. It is all mechanically driven in the first pass that triggers notices. Perhaps during audit they may read it but the whole point is to avoid a CP2000 that makes the taxpayers nervous.

[ruthc]

Over the years this is what I have observed with automatic CP2000 generation:

1) If there is a 1099-Misc with box 7 amount that has not been included in a Sch C it triggers a flag. So the the best way to turn that off is prepare a Sch C and net out so it is 0.

2) Then include that income in the proper line so that the tax results are correct. This avoids penalty and interest.

No one at IRS reads those explanations. It is all mechanically driven in the first pass that triggers notices. Perhaps during audit they may read it but the whole point is to avoid a CP2000 that makes the taxpayers nervous.

If I were to do it this way, would you enter the amount in "other expenses" with what description, or in "returns and allowances" so the result is-0-? Also what would be listed for the business info? I really want to do it correctly. Although the mechanics would work I don't feel comfortable entering info that is not correct.

My main goal is to do a correct return, enter the 1099MISC somehow so it won't trigger any flags or audit. I want the return to be e-filed with IRS acceptance and the client receive any refund due.

[ATSMAN]

If I were to do it this way, would you enter the amount in "other expenses" with what description, or in "returns and allowances" so the result is-0-? Also what would be listed for the business info? I really want to do it correctly. Although the mechanics would work I don't feel comfortable entering info that is not correct.

My main goal is to do a correct return, enter the 1099MISC somehow so it won't trigger any flags or audit. I want the return to be e-filed with IRS acceptance and the client receive any refund due.

This is how I do it:

Enter the 1099-Misc in your software with Box 7 amount and then link it to a Sch C. In the Sch C for other expenses I add a Line called Adjustment to 1099-Misc Income Reported on Line 21. Put the exact same amount as Box 7. That will Zero out the Sch C. Then On line 21 add the description of the income and add the income. Make a note of exactly why you did this so if by chance there is a CP2000 you will not be scratching your head.

I have done it this way for over 10 years!

[ruthc]

There are obviously several ways to resolve the issue, first being to get a CORRECT tax document.
That being said, don't overlook the option of including a simple explanation of facts to support an action taken on a filed tax return. Income improperly reported on a Form 1099-MISC but duly reported instead on Form 8949 would certainly fit into that category.
My software has enough room for me to write a small novella and to include it as part of the efiled return.
Of course, if you don't efile all of your client returns. . .this option becomes somewhat moot.

FE

As you said, there are several ways to resolve the issue. Yes, I do e-file my returns, and I do like what you suggested. Have you done this before without it causing any IRS notices? Do you think this will trigger a red flag to generate a CP2000, thus resulting in a real delay in the return being processed? I know all the suggestions would work, however, what is the most favorable? I guess I have a lot of thinking to do. I want to feel that I am doing the right thing. Thanks

[Burke]

I will say that I have done the "in-and-out" on the Other Income line in past years, and it never was a problem. The IRS computer apparently "sees" this and it processes. I always put a brief explanation on the "out" line.

[ruthc]

Hooray!!! With the client's permission, I called the person who actually created the 1099 MISC. It appears that the lawyer had no idea how to handle, and the person doing the 1099MISC did what she was told. After explaining everything to her, my client had a corrected form to -0- out the mistake. She is working on the correct 1099 form.

So, I want to thank everyone for your responses. I now have a couple options to use in the future if need be. I just wouldn't feel comfortable preparing the Sch C option, but I do appreciate the option. Thanks again everyone!

[Lion]

Wow! One of the first I know to actually received corrected 1099s. Good for you.

[ATSMAN]

It appears that the lawyer had no idea how to handle,

Taxpayer should bill the lawyer to pay for your charges. If lawyer balks report to the state bar. If the lawyer screwed up he will write the check in a hurry so that the state bar does not get involved.

Couple of years back one of my clients had a lawyer draw up a life estate deed and the lawyer's para legal screwed up. When I showed my client the mistake, not only did the law firm fix the issue but paid my client for my accounting fees!

[ruthc]

Yes, the client is going to report the lawyer. He had other problems with the lawyer too. We'll see what happens...... I don't usually get involved with lawyers, but I just couldn't deal with not having the form corrected especially when it is so early in the tax season that it could be corrected before April 15th. This is the part of helping a client that makes it worthwhile when they are so appreciative and the results come out the way they should.