1099's

[MelanieCPA]

Self-employed client did not issue 1099's to his two subcontractors for 2006. Total paid to them was about 30k. He says the guys reported the income. He's given them 1099's as required in the past. Do I do 1099's at this point?? How should this be handled?

[Uncle Sam]

1099's

If your client wants to get the tax deduction for those payments, 1099s should be issued, even at this late date, unless payments were made to a corporation.

[veritas]

File the 1099s

I have never seen a penalty for late filing.

Plus you get to bill them.

[WhiteOleander]

I disagree. Issuing 1099's is not a requirment for deducting the expense.

It is true that issuing 1099's to individuals you paid over $600 to is a requirement, but, deducting them is not dependent on that.

I instruct the client of the necessity of issuing the 1099's. I prepare them if given the necessary info. But, I do not refuse to list the expense if the client does not choose to send in the 1099's.

[veritas]

If you are

in an audit I would rather do it my way.

Best thing is being able to provide the 1099s since you ARE going to be asked for them.

Plus they may just make your client pay the backup witholding if you can't produce them.

[DTS]

1099s

I've been on two audits where any amount over $600 was disallowed because no 1099 was issued from the business.

I assume this would hold true in the Melanie's case?

Dennis

[MelanieCPA]

Thanks...

this is what I thought to be true. I will prepare the 1099's.

[Golden Rocket]

1099s = Deductibility?

I believe the requirement to issue 1099s for payment in the ordinary course of business is not contingent upon whether it is deducted or not. However, I am able to use this as an effective argument. The payer ends up paying taxes on behalf of the recipient. DTS recount of an auditor disallowing the deduction is very typical, and appropriate enough. The auditor is not going to chase down the recipient - he cannot without being directed.

The "no-1099, no deduction" thought stream does have merit, however. Imagine a farmer paying $2000 for bulldozing. If he is bulldozing trees to fence in his yard from the highway, the expense is personal, not farm, and hence no requirement ot issue a 1099. However, no deduction for this either.

The argument that the client is certain the recipients reported the income is really a stretch. Did this client prepare the recipients' tax returns? If the recipients did report the income, then why would they object to receiving a 1099? Fact of the matter, we don't know whether they did or not, but the requirement is on the payer to issue to 1099s. There is no requirement on the payer to assure the recipient reported the income.

[Gene V]

I think you should issue a 1099 for the expense to be deductible. However, the IRS tells you to report all income, even if you don’t receive a 1099, then it should hold true, that
you can deduct all expenses, even if you don’t issue a 1099.

[Jiggers]

Not issuing 1099's

There is no IRS cite for disallowing an expense because a 1099 wasn't issued.

If an agent pulled that on me, I would request the cite.

The agent can require you to issue 1099's that are late. I have no problem with that.

[Black Bart]

Late 1099s

Self-employed client did not issue 1099's to his two subcontractors for 2006. Total paid to them was about 30k. He says the guys reported the income. He's given them 1099's as required in the past. Do I do 1099's at this point?? How should this be handled?

I guess everybody's experience is different. I've late filed several clients like yours (only two or three subs) and they (like veritas' clients) were never penalized, but on the other hand it might just depend on whether it's worthwhile for IRS to pursue because I've had two clients late file over 50 each and get billed $15 per form. Both escaped by furnishing reasonable cause and pleading for mercy.

The client was out the money, 1099s issued or not, and I think Dennis' IRS agent was wrong and would lose an appeal (Bees: got a cite handy?).

I once had a cafe operator get caught paying his employees cash wages and filing no payroll reports. The agent made him pay income tax withholding by classifying everybody as single with zero withholding exemptions, but he didn't check to see if all those people filed tax returns. The same principle applies here; your guy owes late filing penalties but he's not responsible for making sure subs file with/without 1099s.

As a practical matter, it's not going to come up unless he's audited (and the chances are he won't be). But, if he is, note that the first thing they asked for at the half-dozen or so audits I've been to was the 1099s. And the second thing usually heard from 1099-less clients is "I always want to do everything right..." (glancing sideways in your direction), sooo....I'd tell the client 1099s are required, have him sign that he's been so advised, and then ask if he feels lucky.

In all this excitement, I really can't remember whether I fired five shots or six, so I guess the question is; do you feel lucky? Well, do ya, punk? -- Clint Eastwood in/as Dirty Harry.

[veritas]

I guess everybody's experience is different. I've late filed several clients like yours (only two or three subs) and they (like veritas' clients) were never penalized, but on the other hand it might just depend on whether it's worthwhile for IRS to pursue because I've had two clients late file over 50 each and get billed $15 per form. Both escaped by furnishing reasonable cause and pleading for mercy.

The client was out the money, 1099s issued or not, and I think Dennis' IRS agent was wrong and would lose an appeal (Bees: got a cite handy?).

I once had a cafe operator get caught paying his employees cash wages and filing no payroll reports. The agent made him pay income tax withholding by classifying everybody as single with zero withholding exemptions, but he didn't check to see if all those people filed tax returns. The same principle applies here; your guy owes late filing penalties but he's not responsible for making sure subs file with/without 1099s.

As a practical matter, it's not going to come up unless he's audited (and the chances are he won't be). But, if he is, note that the first thing they asked for at the half-dozen or so audits I've been to was the 1099s. And the second thing usually heard from 1099-less clients is "I always want to do everything right..." (glancing sideways in your direction), sooo....I'd tell the client 1099s are required, have him sign that he's been so advised, and then ask if he feels lucky.

In all this excitement, I really can't remember whether I fired five shots or six, so I guess the question is; do you feel lucky? Well, do ya, punk? -- Clint Eastwood in/as Dirty Harry.

Love that line. You really hated the bad guy by this time and a little voice in your head was saying "go ahead punk say something".

[Davc]

ODOR will deny the deduction on audit if no 1099s were issued. Stated Policy.

[Black Bart]

Okay,

ODOR will deny the deduction on audit if no 1099s were issued. Stated Policy.

I give up. I'm familiar with Odin (god of the Vikings), but who/what the heck is ODOR (I'm assuming you're not referring to bacteria growing on the skin)?

P.S. I still don't believe you can't take a deduction you've paid for (BEES--anything out there cite-wise?)

[Uncle Sam]

1099s

I'm guessing: Oregon Department Of Revenue