State income tax on 1099 Misc

[oceanlovin'ea]

Joe Client is a young man in his 20's whose main residence is in Florida, works for seveal months each year selling security systems in Arizonia and Chicago in 2006. The company he works for is based in Utah.

He gets a 1099 misc for his income for the months he worked for company A. He was in Phoenix for 120 days and 143 days in Chicago.

As I learned last year at GAEA seminar, any money you earn in a state is taxable income and taxes should be paid to that state. Since the 1099 is from a company in Utah and there is no notation on the 1099 that the money was earned anywhere else than Florida or Utah, does the state get information from the company on earnings? Or is this really an "honor" system. You know you worked in Phoenix and you should report that amount of income in Arizonia.

His mother brings in his paperwork to me and then fax the 8879 to him to sign and fax back to me. She says she knows he will say about the state returns that he isn't going to file them. She wondered if the states would come after him if he chooses not to file.

Personally I don't want to go to all the trouble to figure out income and expenses for Phoenix and Chicago and then he doesn't want to file them. But I do want to do the right thing. but I don'w want to waste my time.

Any suggestions on what to do?

Thanks, Linda

[jainen]

how to proceed

>>I don't want to waste my time. Any suggestions on what to do?<<

I suggest you put the return on extension. Explain that you will need to discuss the filing requirements with the taxpayer before you know how to proceed.

[oceanlovin'ea]

Suggested that

His mom said to go ahead and file the federal and then we can do the states after she talks to him.

I was half tempted to do states and print out and give to them to mail in. That way I have done my responsibility and it is on their shoulders now.

Linda F

[S T]

Your responsibility

Linda,

I believe your responsibility would be to prepare the Federal and necessary States returns, and charge the client accordingly. So the non-resident State returns need to be prepared as part of your total Tax Return Package.

As far as where the issuing agent was for the 1099 (Utah), if the t/p only worked in Az and IL, you would have to file only in those states he worked.

It is not up to you to make sure the state returns are filed, it is only up to you to prepare the appropriate State returns and provide them to the client with the included instructions.

Sandy

[oceanlovin'ea]

Their question

was How does Arizona or Illinois know that he worked in that state. It doesn't seem to be listed on the 1099.

I told her that it was a matter of honesty. He knows he worked in those states and should pay the tax to the state that he worked in. If and when they catch up with him, there would be penalties and interest on the unreported income.

The mom actually said that a few years ago another son worked in CA part of a year and CA kept trying to make him pay even after he was no longer working in CA.

They are very religious people and so should be guided by their conscience to do the right thing regardless of what is or is not on 1099.

I think I will prepare the state returns and then at least I will feel better.

Linda F

[S T]

States

Linda,

I am not sure about the other States, but I know that California obtains the 1099 info from the Fed records, and Calif is very aggressive in their collections.

We no longer submit any 1099 info to Calif when we prepare the 1099 forms and 1096 transmittals.

You will know that you complied with the tax regulations by preparing the appropriate returns and providing them to the taxpayer. They can choose to file or ignore, but at least you have it in your records.

Sandy

[jainen]

working with the client.

>>They are very religious people and so should be guided by their conscience<<

Oh no, not ANOTHER post about redefining someone else's religious convictions. This is way beyond Circular 230, that's for sure.

A good time to explore professional ethics is February, maybe March. April is reserved for technical issues about completing the returns. Anything weird has to wait, because I just can't serve the client well in that regard when I'm running on four hours sleep.

You aren't even in contact with the real client, so how can you know what his conscience tells him? Put this one on the shelf until he signs an engagement letter that spells out what you can and can't do. More than one approach could be proper, but only if you are working WITH the client.

[DixieEA]

agree

I agree with jainen with this one. In this situation you need direct communication with the
client.

DixieEA

[oceanlovin'ea]

Agree

that it would help if I was able to talk to the client directly. But his mother always takes care of this for him. By now he is off doing his sales somewhere I think.

She talks to him or emails him.


Part of the problem with the situation is that she has ended up paying his taxes several times and he is supposed to pay her back but doesn't.

He is bipolar and she is his enabler. So that is a situation that I am going to stay out of.

I think that I am going to prepare the returns and give them to her. Tell her he is responsible for mailing in the returns.

Then I will have done what I am supposed to do and I will leave the actual mailing in of the returns to them.

Thanks for your help.

Linda F

[Luis Mopeo]

that it would help if I was able to talk to the client directly. But his mother always takes care of this for him. By now he is off doing his sales somewhere I think.

She talks to him or emails him.


Part of the problem with the situation is that she has ended up paying his taxes several times and he is supposed to pay her back but doesn't.

He is bipolar and she is his enabler. So that is a situation that I am going to stay out of.

I think that I am going to prepare the returns and give them to her. Tell her he is responsible for mailing in the returns.

Then I will have done what I am supposed to do and I will leave the actual mailing in of the returns to them.

Thanks for your help.

Linda F

It sounds like this guy has more than one enabler, and almost got his tax person to enable him as well.

It's a good decision to prepare all the returns the way you know they should be prepared. It's the only decision.

Yes, it's an "honor" system. The entire tax system is an honor system. Prepare the returns the way you know they should be prepared. It's true that in all likelihood nobody will notice if you don't report the income to the states. Oops. Wrong. There will be one very important person who will notice. That's you. And you'll have a little monkey on your back.

This is no different than the question "If my income wasn't on a 1099, do I still have to report it?"

[lbbwest]

&quot;She talks to him or emails him&quot;

If she CAN so CAN you.