1099 misc

[doormat]

My wife got a 1099 misc and never received money, she volunteered her time. the person whom sent it is someone she has been having legal issues with. What can she do now that we have already completed our taxes? Thanks dan

[JohnH]

Too little information

You haven't given enough information to receive an answer. Can you add some specifics?

[doormat]

You haven't given enough information to receive an answer. Can you add some specifics?

My wife was a partner at one time in a management business to run a bingo for charity. She left in 2006. She withdrew in Nov of 2006. We filed her W-2's and a 1099 in last years taxes. In May of last year the bookkeeper was caught stealing over 2000.00 out of the corp checking account. This person was also treasurer of company. Anyways, this treasurer also has another business run by both her and her husband. They do taxes. They did the corporations taxes as well. In June my wife became involved in helping her mom (an owner) to find an attorney and help her file court papers. She also helped her mom a couple of days and volunteered as a caller at her moms bingo. My wife's greedy brother and this accountant bought out the corporation. My wife out of the blue received a 1099 Misc (non employee compensation) in the mail yesterday claiming she received over 4000.00. My wife never received or took money for helping her mom at all! BUT, her brother and this accountant whom are angry with my wife for helping her mom, sent her this. Is this legal? What are my wife's recourse in all this? Like I said before, what a mess, and I am not happy with having to deal with this myself as well. dan

[DaveO]

Contact your local IRS office

Ask to speak to someone in CID. Explain what happened to him. See if he wouldn't make a phone call inquiring about the 1099.

[JohnH]

A mess

Sounds like you have a mess to deal with.

The 1099 can be a problem. What you are expected to do is file an amended return and report the income shown on the 1099, but if you believe the 1099 is issued in error you can attach a statement explaining your situation. If you do that, you need to be careful what you say because it's all done under oath. This alone would call for your hiring a tax pro to do it right.

If you do nothing, you may get a bill from the IRS in a couple of years charging you the tax on the unreported income, plus penalties & interest. IRS assumes a 1099 they receive is correct unless you can prove otherwise, and a yera or two down the road can be a long time when memories have faded and you can't remember the exact sequence of events.

Another possibility is that they sent your wife the 1099 to shake things up, but didn't send the copy to IRS. I'm not saying that's what happened here, but it appears that you are dealing with a bunch of people who have too much time on their hands. I've seen people do things this dumb and even dumber when their emotions got in the way.

Another possibility is that your wife was given something of value when the business shut down and they tried to use the 1099 to account for it. Or she could have been paid mnoney in 2007 that she forgot about, or paid a reimbursement for some expenses and they classified the payment incorrectly.

This could go on & on, but the bottom line is you probably need to hire a local tax pro to help you navigate this. The money will be well spent and you probably won't regret having done so.

[doormat]

Sounds like you have a mess to deal with.

The 1099 can be a problem. What you are expected to do is file an amended return and report the income shown on the 1099, but if you believe the 1099 is issued in error you can attach a statement explaining your situation. If you do that, you need to be careful what you say because it's all done under oath. This alone would call for your hiring a tax pro to do it right. Why would she file an amended return if she received no money?

(why would she have to file an amended return if she never received any money?)

If you do nothing, you may get a bill from the IRS in a couple of years charging you the tax on the unreported income, plus penalties & interest. IRS assumes a 1099 they receive is correct unless you can prove otherwise, and a yera or two down the road can be a long time when memories have faded and you can't remember the exact sequence of events.

(This 1099 misc is for 2007, My wife never worked nor was paid any money for 2007. All compensation, wages, etc she received in 2006 she claimed on her taxes last tax year.)

Another possibility is that they sent your wife the 1099 to shake things up, but didn't send the copy to IRS. I'm not saying that's what happened here, but it appears that you are dealing with a bunch of people who have too much time on their hands. I've seen people do things this dumb and even dumber when their emotions got in the way.

(the tax people whom did this were called today. they are claiming they did send it to IRS and only did what this new owner told them to do)

Another possibility is that your wife was given something of value when the business shut down and they tried to use the 1099 to account for it. Or she could have been paid mnoney in 2007 that she forgot about, or paid a reimbursement for some expenses and they classified the payment incorrectly.

(I can assure you that 100% of everything she received for payments were recorded and taxes were paid last year). As a matter of fact, the woman who did all this, when I spoke to her doesn't understand why my wife's brother had her sent my wife this 1099. So now I am even more confused with the legalities of who is responsible for sending her this fraudulent 1099 misc.)

This could go on & on, but the bottom line is you probably need to hire a local tax pro to help you navigate this. The money will be well spent and you probably won't regret having done so.

(If I must hire a local tax pro to fix this, would this error make "them" responsible to reimburse me for having to deal with all this due to their error?)

[JohnH]

No

No, but you could try to get them to pay it.
Given your history with them, I don't think that's likely. Do you?

Of course, there are always the courts....
But if I were you I'd be very judicious in my use of words like "fraudulent", regardless of the circumstances.

[FEDUKE404]

My $0.02 worth

I think you need an attorney more than a tax pro.

If there was no basis for your wife to have "income" (appears not to be) then you are being used by the employer to justify their wages "paid out."

As a non-attorney, I would think your IRS exposure is minimal once someone in their investigative division knows the underlying facts. I would NEVER clutter up my personal return by including/removing/amending or whatever for the phantom income shown on the Form 1099. Even if the IRS eventually asks about the non-reported income, your response should have been presented long before that.

FE

[doormat]

I reported this fraudulent 1099 misc to the IRS. I filled out the form off the internet, and am mailing it in. I hope this works. This is just so sick. thanks dan

[ED SMITH]

Fraud??? Unlikely. Fraud is a criminal offense which has to be prosecuted by the DOJ in court. Out of 100 million tax returns a year there are only about 550 fraud cases. The IRS is not interested unless they can recover at least $100K in taxes, P&I. It is just too expensive and they don't always win - Wesley Snipes as an example. Intent has to be proven and a one time event could hardly build a fraud case. After all, it could just be a bookkeeping error.

The quickest and easiest way to dispose of this is to put the $4000 on Schedule C as income and then offset under Other Expenses - "Offset of incorrect 1099MISC".
I have done this many time over the years and so far there has never been a problem.

Otherwise it will come back in about 2 years with a CP2000 letter stating that your tax return does not conform to the income reported to the IRS. You will have to make a sworn statement.

[JohnH]

Use of the word "fraud"

Ed:
Glad you elaborated on the word "fraud". The poster apparently didn't notice my caution about that. This overall situation looks like one that could wind up in court anyhow (irrespective of the 1099 issue).

However, if he tosses that word around too much and in the wrong company, he could find himself on the receiving end of a lawsuit he hadn't anticipated. If you call someone a criminal & threaten to get them in trouble in an effort to compel them to do something, you may be inadvertenly handing them the legal gun to shoot you with.

[fliszt]

Ed,

thanks for your post. I never would have considered the sch C and "offset incorrect 1099".
I've never run accross this but when and if I do, I will remember who taught me. BTW, my boss at General Mills Chemicals was Ed Smith. You wouldn't be the same are you?

[FEDUKE404]

Why claim the income, regardless??

The quickest and easiest way to dispose of this is to put the $4000 on Schedule C as income and then offset under Other Expenses - "Offset of incorrect 1099MISC".
I have done this many time over the years and so far there has never been a problem.

Please pardon my ignorance, but:

Although I certainly understand one does not toss "fraud" around lightly ---

WHY would you ever include income on your tax return that you know is not yours, even if you could "repair" the problem so there is no tax?

That would seem to me almost like pleading guilty to a crime you did not commit since someone told you that parole would certainly occur. Or in another light, it's OK since two wrongs equal a right.

I would think the taxpayer should easily be able to say "that income is clearly not mine" or "there is an error" without ever having to say that dreaded "F-word."

FE

[doormat]

So it is not fraudulent when someone sends my wife a 1099 misc knowing they never gave her any money??? Or the person whom did the taxes for the company claims they don't understand it either and only did what they were told to do is not criminal? I called them again yesterday and the tax preparer is claiming the person doing this is doing it out of emotions. What the heck is that? To send in false information to the IRS knowingly, then claim too bad, and causes these problems for another individual to me is a fraudulent act, right? If I am wrong please correct me. Thanks Dan

[FEDUKE404]

NO argument here!

So it is not fraudulent when someone sends my wife a 1099 misc knowing they never gave her any money??? Or the person whom did the taxes for the company claims they don't understand it either and only did what they were told to do is not criminal? I called them again yesterday and the tax preparer is claiming the person doing this is doing it out of emotions. What the heck is that? To send in false information to the IRS knowingly, then claim too bad, and causes these problems for another individual to me is a fraudulent act, right? If I am wrong please correct me. Thanks Dan

Dan,

I tend to agree with you 100%, but deferred to others who brought up the ambulance-chaser issues. After the suggestions to show the obviously erroneous income on the tax return and then to make it go away, I decided to become a bystander on this thread.

FE