1099 error

[taxtimeagain]

I have a self employed client who says that 1099 received is in error. The income stated is too high. However neither client or 1099 maker can prove what income is as cash was frequently paid. how would it be reported correctly? Thanks

[LowerAlabamaOldEA]

Inexactitude

Judge Learned Hand: "The inexactitude of the taxpayer, shall militate against the taxpayer."

[veritas]

LowerAlabamaOldEA

I think you are going to fit in our group quite well.

[taxtimeagain]

bump for an answer!

[Kram BergGold]

What I would do

Since neither knows the right amount I would tell them to agree on the amount and if necessary issue a corrected or new 1099 Form. If the payor won't budge them get the client to give you a detailed record of the payments for your file in case of an audit. Then make a line item adjustment on Scheudle C for the amount on the 1099 in excess of what he claims.

[taxxcpa]

Report it correctly?

I have a self employed client who says that 1099 received is in error. The income stated is too high. However neither client or 1099 maker can prove what income is as cash was frequently paid. how would it be reported correctly? Thanks

If no one can prove how much, then divine inspiration may be the only way.

There is no way to answer your question since no one knows whether the client or the payer is correct. If you are sure the client is correct, then you would need to deduct an amount on Schedule C to offset the excess on the 1099. If he has other income not shown on a 1099 that exceeds the excess on the 1099, then just report his gross income and make no distinction between that reported on 1099s and other income.

[JohnH]

Schedule C adjustment?

I thought the Schedule C instructions said to attach a statement to the return explaining why the amount reported is less than the total of Form 1099's. Buryuing the difference as an unsubstantiated deduction on Schedule C might buy a whole new set of problems.

In any event, the client had better be able to furnish some sort of documentation for reporting the lesser amount. I don't think saying "I don't see how I could have made that much" is going to go very far. As the preparer, I'd expect to have this thing pretty well documented before I'd pout my name on the return. How much is the difference - is it in the hundreds, thousands, or tens of thousands?

[Bees Knees]

The correct procedure is to attach a statement to the return explaining why the Schedule C gross income does not match the 1099.

The way 100% of us do it is to report all of it under Schedule C gross income and create a bogus deduction on Schedule C to make it equal to the correct amount.

The worst that can happen is on the 1.2% chance you get audited, the auditor asks for proof of the bogus deduction, you explain its purpose, and the auditor asks you whether you can do that. You say: "Of course I can do that. That taxpayer is not required to pay tax on income he did not receive."

Deduction allowed. End of story.